The dollar index (DXY00) on Tuesday rose by +0.12%. The dollar saw support from stronger-than-expected U.S. manufacturing production and NAHB housing reports, which pushed T-note yields higher. In addition, hawkish Fed comments Tuesday from Chicago Fed President Goolsbee and Richmond Fed President Barkin gave the dollar a boost.
Weakness in the Chinese yuan was supportive for the dollar after weaker-than-expected Chinese economic news knocked the yuan down to a 2-month low Tuesday against the dollar.
Tuesday’s U.S. economic news was mostly better than expected and bullish for the dollar. Apr retail sales ex-autos rose +0.4% m/m, right on expectations. Also, Apr manufacturing production rose +1.0% m/m, stronger than expectations of +0.1% m/m. In addition, the May NAHB housing market index unexpectedly rose +5 to a 10-month high of 50, stronger than expectations of no change at 45.
Fed comments on Monday were hawkish for monetary policy and bullish for the dollar. Chicago Fed President Goolsbee said service inflation is more persistent than thought, and it's "far too premature" to be talking about interest rate cuts. Also, Richmond Fed President Barkin said he was still looking to be convinced that inflation has been defeated and that he would support raising interest rates further if needed.
EUR/USD (^EURUSD) on Tuesday fell by -0.05%. The euro Tuesday posted modest losses after the German May ZEW survey expectations of economic growth index fell more than expected to a 5-month low. However, losses in EUR/USD are limited by hawkish comments from ECB Governing Council member Holzmann who said the ECB needs to raise its deposit rate above 4% to tackle inflation.
The German May ZEW survey expectations of economic growth index fell -14.8 to a 5-month low of -10.7, weaker than expectations of -5.0.
ECB Governing Council member Holzmann said, "Given core inflation of around 6%, ECB policy is still expansive," and the ECB needs to raise its deposit rate above 4% to tackle inflation.
USD/JPY (^USDJPY) on Tuesday rose by +0.13%. The yen on Tuesday added to Monday’s losses and posted a new 1-1/2 week low against the dollar. Higher T-note yields Tuesday weighed on the yen. Also, Tuesday’s rally in the Nikkei Stock Index to a 1-1/2 year high curbed the safe-haven demand for the yen. However, losses in the yen were limited by safe-haven support for the yen from lingering concerns about U.S. regional banks and the debt ceiling dispute.
June gold (GCM3) on Tuesday closed down -29.70 (-1.47%), and July silver (SIN23) closed down -0.398 (-1.64%). Precious metals on Tuesday retreated, with gold falling to a 2-week low and silver dropping to a 6-week low. A stronger dollar Tuesday weighed on metals prices. Also, stronger-than-expected U.S. Apr manufacturing production and NAHB housing reports were hawkish for Fed policy and bearish for precious metals prices. In addition, hawkish Fed comments Tuesday from Chicago Fed President Goolsbee and Richmond Fed President Barkin undercut precious metals prices.
Silver prices Tuesday were also weighed down by negative carryover from a slump in copper prices to a 5-month low after weaker-than-expected Chinese industrial production activity bolstered concern about Chinese demand for industrial metals.
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.
