The dollar index (DXY00) on Tuesday rose by +0.45%, recovering some ground after posting a 2-month low last Thursday. The dollar saw support from Tuesday’s +7 bp rise in the 10-year T-note yield.
The dollar also saw support from hawkish Fed comments. Fed Governor Waller on Monday said that the recent economic data supports keeping interest rates on hold until more progress is seen on inflation. However, he said that the CPI may be subject to seasonal adjustment problems and that if inflation behaves as it did in 2024, the Fed can get back to cutting “at some point this year.”
Meanwhile, San Francisco Fed President Mary Daly on Tuesday said that monetary policy needs to remain restrictive until there is more progress on inflation. She said that inflation will continue to improve but that it will take longer than anyone wants. She also said the Fed should take its time to assess any monetary policy changes until the net impact of the Trump administration’s policies becomes clearer.
On the Fed front, the markets are waiting for Wednesday’s release of the January 28-29 FOMC meeting minutes. The FOMC at that meeting left its federal funds target range unchanged at 4.25-4.50%, standing pat after cutting the funds rate by a total of 100 bp in second half of 2024.
The NAHB US homebuilder confidence index fell by -5 points to a 5-month low of 42. Negative factors for homebuilders include continued high mortgage rates and expectations for higher construction costs due to inflation and tariffs.
Tuesday’s Feb Empire manufacturing index rose to 5.7 from -12.6 in Jan, substantially stronger than market expectations for a rise to zero.
The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) fell by -0.36%, mainly due to dollar strength. The euro continues to be undercut by US tariff concerns after President Trump last week announced reciprocal tariffs by April 1 and auto tariffs, which could fall heavily on Europe. The euro is seeing support from hopes for an end to the Russian-Ukraine war after top US and Russian officials met in Saudi Arabia.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) rose by +0.30%, recovering some ground after last week’s sharp decline. The yen saw support last Thursday when Japanese Prime Minister Ishiba said the Japanese economy is on its way to achieving sustainable inflation backed by wage growth, which was hawkish for BOJ policy.
April gold (GCJ25) on Tuesday closed up +48.30 (+1.67%), and March silver (SIH25) closed up +0.518 (+1.58%). Gold prices saw support after Goldman Sachs lifted its year-end gold target to $3100 on central-bank demand and inflows into gold ETFs. Goldman said gold is also seeing support from economic policy uncertainty stemming from investor concern about tariffs. Precious metals prices Tuesday were undercut by the stronger dollar and +7 bp rise in the 10-year T-note yield.
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.More news from Barchart
- Are the Frictions Between the U.S. and Mexico Bullish for Silver?
- Politicians Are Buying This 1 Gold ETF Hand Over Fist as Prices Hit Record Highs
- 2 Gold Stocks to Buy Now to Take Advantage of Rising Prices
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
