Dollar Weakens as Markets React to Trump’s Tariff Decisions
The dollar index (DXY00) saw a decline of -1.20% on Tuesday. The significant drop came after President Trump chose not to impose new tariffs on goods from Asia and Europe on his first day in office. This decision calmed inflation fears and may lead the Federal Reserve to continue its trend of cutting interest rates. Additionally, a decrease in Treasury note yields diminished the dollar’s interest rate advantage, contributing to its decline. The rally in the stock market on the same day also reduced the demand for dollars, further pressuring the currency.
Euro Rises Amid Improved Car Sales Data
EUR/USD (^EURUSD) rose slightly by +0.02% on Tuesday, reaching a two-week high. The euro managed to recover from earlier losses, buoyed by the dollar’s decline following President Trump’s tariff announcement. Moreover, news showing that new car registrations in the Eurozone increased significantly in December—by +5.1% year-over-year to 911,000 units—added to this support.
Despite its gains, the euro initially fell due to dovish comments from European Central Bank (ECB) officials. Members Villeroy de Galhau and Kazimir mentioned the possibility of continuing interest rate cuts this year. Additionally, the euro was pressured by a drop in German business sentiment, with January’s ZEW survey showing economic growth expectations tumbling by -4.4 to 10.3, against analyst forecasts of 15.1.
ECB Rate Cut Likely Following Commentary from Officials
Statements from ECB Governing Council member Villeroy de Galhau suggested a strong consensus for potential interest rate cuts in upcoming meetings. Kazimir reiterated that a rate reduction during next week’s meeting is nearly guaranteed, with two to three additional cuts likely to follow. Currently, swaps indicate a 99% chance of a -25 basis points cut by the ECB on January 30.
Yen Strengthens as Expected Rate Increases Gain Traction
USD/JPY (^USDJPY) dipped by -0.03% on Tuesday. The yen reached a one-month high against the dollar, positively impacted by Trump’s decision not to impose new tariffs on Asian goods. This development bolstered expectations that the Bank of Japan (BOJ) might raise interest rates following its upcoming policy meeting. Reports from Kyodo News also hinted at a possible BOJ rate increase. Nevertheless, the yen’s gains were limited as the yield on the 10-year Japanese Government Bond (JGB) matched a one-and-a-half-week low of 1.178%, which affected the yen’s interest rate attractiveness.
Precious Metals Rise with Support from Weaker Dollar
February gold (GCG25) concluded the day up +10.50 (+0.38%), while March silver (SIH25) gained +0.355 (+1.14%). Both precious metals settled higher, driven by the weakened dollar and falling global bond yields. Dovish comments from ECB officials added to the attractiveness of precious metals as a store of value. Silver prices also received a boost, reflecting optimism for economic growth and demand for industrial metals when Trump decided against imposing new tariffs on China.
However, gold’s increase faced limitations as safe-haven demand diminished, and inflation expectations declined. The US 10-year breakeven inflation rate fell to a one-and-a-half-week low, reducing gold’s appeal as an inflation hedge. Additionally, the stock market rally tempered demand for safe-haven investments like gold and silver.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
