The dollar index (DXY00) Tuesday fell by -0.14%. The dollar on Tuesday gave up early gains and fell to a 5-month low after T-note yields gave up an early advance and turned lower, weakening the dollar’s interest rate differentials. Strength in the euro also weighed on the dollar after EUR/USD climbed toa 5-1/4 month high after Germany's parliament passed a spending package.
The dollar on Tuesday initially moved higher from stronger-than-expected US economic reports on Feb housing starts and Feb manufacturing productions. Also, the US Feb import price index ex-petroleum report rose more than expected, a hawkish factor for Fed policy. Weakness in stocks Tuesday also boosted liquidity demand for the dollar.
US Feb housing starts rose +11.2% m/m to 1.501 million, stronger than expectations of 1.385 million. Feb building permits, a proxy for future construction, fell -1.2% m/m to 1.456 million, a smaller decline than expectations of 1.453 million.
The US Feb import price index ex-petroleum rose +0.4% m/m, stronger than expectations of +0.2% m/m.
US Feb manufacturing production rose +0.9% m/m, stronger than expectations of +0.3% m/m and the biggest increase in a year.
The markets are discounting the chances at 1% for a -25 bp rate cut at the Tue-Wed FOMC meeting.
EUR/USD (^EURUSD) Tuesday rose by +0.23% and posted a 5-1/4 month high. EUR/USD rallied Tuesday after the German Mar ZEW survey expectations of economic growth rose more than expected to a 3-year high. The euro extended its gains after Germany's parliament passed a spending program that would usher in more expansive fiscal policy and boost economic growth. The plan releases defense spending from the debt brake and creates a 500-billion-euro ($546 billion) fund to invest in Germany's infrastructure, which will usher in more expansive fiscal policy and boost economic growth.
The German Mar ZEW survey expectations of economic growth rose +25.6 to a 3-year high of 51.6, stronger than expectations of 48.3.
Swaps are discounting the chances at 55% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.01%. The yen on Tuesday dropped to a 1-1/2 week low against the dollar. Tuesday's rally in the Nikkei Stock Index to a 2-1/2 week high has curbed safe-haven demand for the yen. Also, the larger-than-expected decline in the Japan Jan tertiary index is undercutting the yen. The yen recovered most of its losses after T-note yields gave up an early advance and turned lower. Also, short covering and position squaring boosted the yen ahead of Wednesday's BOJ meeting.
The Japan Jan tertiary index fell -0.3% m/m, weaker than expectations of -0.1% m/m.
April gold (GCJ25) Tuesday closed up +34.70 (+1.15%), and May silver (SIK25) closed up +0.510 (+1.49%). Precious metals on Tuesday settled moderately higher, with April gold posting a contract high and nearest-futures (H25) gold posting an all-time high of $3,038.10 an ounce. Also, silver prices climbed to a 4-1/2 month high. Tuesday’s slump in the dollar index to a 5-month low is bullish for metals prices. Also, ramped-up geopolitical risks in the Middle East have sparked safe-haven buying of precious metals after Israel launched a series of airstrikes across Gaza, ending a two-month ceasefire with Hamas, and after the US launched weekend strikes on Yemen's Houthi rebels. Also, the ongoing trade war has boosted the safe-haven demand for precious metals. Fund buying of gold supports prices after long gold positions in ETFs rose to a 17-month high Monday.
Silver is climbing on carryover support from Tuesday's rally in copper prices to a 9-3/4 month high after China unveiled a plan to boost consumer spending, which supports economic growth and industrial metals demand. Also, Tuesday's stronger-than-expected US reports on Feb housing starts and Feb manufacturing production are bullish for industrial metals demand.
The negative side of precious metals is today's dollar strength. Also, higher global bond yields are bearish for precious metals. In addition, concerns that US trade policies will undercut economic growth that reduces demand for industrial metals are negative for silver prices.
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.
