The dollar index (DXY00) on Tuesday fell by -0.27% on weak US economic news and ongoing tariff concerns. The dollar also fell due to the sharp -11 bp decline in the 10-year T-note yield that weakened the dollar’s interest rate differentials.
Tuesday’s Feb Conference Board US consumer confidence index fell sharply by -7.0 points to an 8-month low of 98.3, which was much weaker than expectations for a decline to 102.5. The -7.0 point drop was the largest drop in 2-1/2 years and was the third consecutive monthly decline.
The markets remain nervous about the potential negative effect of tariffs on the US economy. President Trump on Monday afternoon, at a joint press conference with French President Macron, said that US tariffs on imports from Mexico and Canada will go ahead “on time, on schedule.” Mr. Trump delayed the tariffs by a month until March 4 due to new border measures implemented by both Canada and Mexico. Mr. Trump on Monday also said he plans to go ahead with the “reciprocal tariffs” that he previously said would be ready by April 1.
US home prices showed solid increases in December. The Dec S&P Corelogic US home price index rose +0.52% m/m and +4.48% y/y, slightly stronger than expectations of +0.40% m/m and +4.41% y/y, and was stronger than Nov’s revised report of +0.44% m/m and +4.35% y/y. Meanwhile, the Dec FHFA US house price index rose +0.4% m/m and +1.4% y/y, which followed Nov’s revised report of +0.4% m/m and +0.9% y/y.
The remainder of this week’s USeconomic calendaris busy. Thursday’s US Q4 GDP report is expected to show an increase of +2.3% (q/q annualized), with a +4.1% increase in personal consumption. Friday’s Jan PCE price index report, the Fed’s preferred inflation measure, is expected to ease slightly to +2.5% y/y from December’s +2.6%, and the core index is expected to ease to +2.6% y/y from December’s +2.8%. The expected Jan PCE reports of +2.5% nominal and +2.6% core would leave those measures at or above their 3-3/4 year lows posted in 2024 of +2.1% and +2.6%, respectively, and well above the Fed’s +2% inflation target.
The markets are discounting the chances at 3% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) rose +0.45%, mainly due to weakness in the dollar. There was also carry-over support for the euro after the German conservative Christian Democrat party, led by Friedrich Merz, won a plurality in Sunday’s German election, beating the far-right Alternative for Germany (AfD) party. However, the centrist parties are expected to have difficulty building a ruling coalition.
The euro found support from a hawkish comment Tuesday by ECB Governing Council member and Bundesbank President Joachim Nagel, who said ECB rates are approaching neutral.
German Q4 GDP was left unrevised at a weak -0.2% q/q and -0.4% y/y.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) fell by -0.43% and edged to a new 4-1/2 month low, mainly due to overall weakness in the dollar. Also, the yen had underlying support from last Friday’s rise in the 10-year JGB bond yield to a 15-year high of 1.466% although the yield has since fallen back to 1.37%. Japan’s Jan national CPI last Friday rose to a 2-year high of +4.0% y/y, keeping the pressure on the BOJ to lean towards further interest rate hikes.
April gold (GCJ25) on Tuesday closed down -44.40 (-1.50%), and March silver (SIH25) closed down -0.777 (-2.38%). Precious metals prices fell due to the risk-off environment and long liquidation pressure. Precious metals fell despite underlying bullish factors such as Tuesday’s lower dollar and the sharp decline in the 10-year T-note yield. Silver prices fell sharply on concern about industrial metals demand with the trade conflict and sagging US consumer confidence.
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