Dollar Index Gains on Strong Economic Data Amid Trade Tensions
The dollar index (DXY00) increased by +0.24% today, driven by stronger-than-expected U.S. economic data. Increased liquidity demand due to stock market weakness also contributed to the dollar’s rise. Moreover, hawkish remarks from Dallas Fed President Logan indicated that interest rate adjustments may take time, supporting the dollar.
However, US-China trade tensions dampened dollar gains, following Treasury Secretary Bessent’s comments on stalled trade talks and President Trump’s accusation that China violated tariff agreements. The dovish US core PCE price index, the Federal Reserve’s favored inflation measure, added to the pressure on the dollar.
April personal spending in the U.S. rose by +0.2% month-over-month, meeting expectations. Personal income for April increased by +0.8%, surpassing the +0.3% forecast and marking the largest rise in 15 months. The core PCE price index climbed +0.1% month-over-month and +2.5% year-over-year, aligning with forecasts but reflecting the slowest growth in four years.
The Chicago PMI for May unexpectedly dropped by -4.1 points to 40.5, diverging from expectations of a rise to 45.0. Additionally, the University of Michigan’s May consumer sentiment index was revised up by +1.4 to 52.2, exceeding expectations of 51.5.
Inflation expectations metrics from the University of Michigan showed a downward revision for May, with the 1-year indicator decreasing from +7.3% to +6.6%, weaker than the +7.1% forecast. The 5-10 year expectations were also revised down to +4.2%, below the anticipated +4.6%.
In comments late Thursday, Dallas Fed President Logan emphasized uncertainty regarding market responses to tariffs, suggesting the Fed may not adjust interest rates soon. Market expectations indicate a 2% chance of a -25 bp rate cut following the upcoming June 17-18 FOMC meeting.
EUR/USD (^EURUSD) fell by -0.29% today, negatively impacted by the stronger dollar. Eurozone economic data weakened the euro as April M3 money supply rose more than anticipated, while German retail sales reported their largest decline in 1.5 years. The euro’s losses were somewhat mitigated by a stronger-than-expected German May CPI.
Eurozone April M3 money supply grew by +3.9% year-over-year, exceeding the +3.7% forecast. Conversely, German April retail sales declined by -1.1% month-over-month, missing the expected +0.2% increase.
German May CPI (EU harmonized) saw a +0.2% month-over-month rise and +2.1% year-over-year, outperforming expectations of +0.1% and +2.0%, respectively. Swap markets reflect a 99% probability of a -25 bp rate cut by the ECB at its June 5 meeting.
USD/JPY (^USDJPY) decreased by -0.26% as the yen gained against the dollar amid rising safe-haven demand due to heightened US-China trade tensions. Support for the yen also came from stronger-than-expected Japanese industrial production and Tokyo CPI figures. Additionally, higher Japanese government bond yields positively influenced the yen.
Japan’s April industrial production fell by -0.9%, a smaller decline than the -1.4% expected. The May Tokyo CPI rose by +3.4% year-over-year, aligning with April, while CPI ex-fresh food and energy grew by +3.3%, surpassing the +3.2% estimate, marking the largest gain in 16 months.
June gold (GCM25) declined by -36.80 (-1.11%), while July silver (SIN25) fell by -0.238 (-0.71%) due to dollar strength. Hawkish comments from Dallas Fed President Logan and strong US personal income and consumer sentiment reports negatively impacted precious metals. However, safe-haven demand, driven by US-China trade tensions, limited losses, along with a decline in the US April core PCE price index, which was the lowest in over four years.
On the date of publication, Rich Asplund did not have positions in any securities mentioned in this article. All information is for informational purposes. For more details, view the Barchart Disclosure Policy.
The views expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.
