The dollar index (DXY00) on Tuesday fell by -0.36% as T-note yields declined. Also, strength in the Chinese yuan Tuesday undercut the dollar after China's Q1 GDP expanded more than forecast. Hawkish comments Tuesday from St. Louis Fed President Bullard and Atlanta Fed President Bostic provided underlying support for the dollar. The market shows an 88% chance the Fed will raise the federal funds target range by 25 bp at the upcoming May 2-3 FOMC meeting.
Tuesday’s U.S. housing news was mixed for the dollar. On the positive side, Mar housing starts fell -0.8% to 1.42 million, a smaller decline than expectations of 1.40 million. Conversely, Mar housing permits, a proxy for future construction, fell -8.8% m/m to 1.413 million, weaker than expectations of 1.450 million.
Hawkish Fed comments on Tuesday were bullish for the dollar. St. Louis Fed President Bullard said the Fed should keep raising interest rates after recent data showed inflation remains persistent. Also, Atlanta Fed President Bostic said he favors going on hold after delivering one more rate hike and then holding rates above 5% for "quite some time."
EUR/USD (^EURUSD) on Tuesday rose by +0.44%. Dollar weakness on Tuesday sparked short covering in the euro. Also, hawkish comments from ECB Chief Economist Lane were supportive of EUR/USD when he said another rate hike by the ECB is appropriate at next month's policy meeting. However, gains in the euro were limited after Eurozone economic news showed the German Apr ZEW survey expectations of economic growth index unexpectedly fell to a 4-month low.
ECB Chief Economist Lane said another rate hike by the ECB is appropriate at next month's policy meeting, with the upcoming economic news being determinative of the size of the move.
The German Apr ZEW survey expectations of economic growth index unexpectedly fell -8.9 to a 4-month low of 4.1, weaker than expectations of an increase to 15.6.
USD/JPY (^USDJPY) on Tuesday fell by -0.31%. The yen Tuesday recovered from a 1-month low against the dollar and rose moderately. A decline in T-note yields Tuesday was supportive for the yen. Also, Tuesday’s comments from BOJ Governor Ueda boosted the yen when he said we are “seeing good signs of growing in prices and wages.”
June gold (GCM3) on Tuesday closed up +12.70 (+0.63%), and May silver (SIK23) closed up +0.175 (+0.70%). Precious metals on Tuesday settled moderately higher. A weaker dollar Tuesday was bullish for metals prices. Also, a decline in T-note yields was positive for metals. Silver garnered support Tuesday from the news that showed China's Q1 GDP expanded more than forecast, a positive factor for industrial metals demand. Hawkish comments Tuesday from St. Louis Fed President Bullard limited gains in metals when he said the Fed should keep raising interest rates.
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.
