The dollar index (DXY00) on Tuesday rose by +0.22%. The dollar on Tuesday posted moderate gains as concern about the ongoing U.S. debt ceiling turmoil boosted safe-haven demand for the dollar. Also, hawkish comments from New York Fed President Williams and Fed Governor Jefferson lifted bond yields and were bullish for the dollar. In addition, weakness in stocks on Tuesday sparked liquidity demand for the dollar.
Hawkish Fed comments Tuesday were bullish for the dollar. New York Fed President Williams said, "In my forecast, we need to keep a restrictive stance of policy in place for quite some time, and I don't see in my baseline forecast any reason to cut interest rates this year." Also, Fed Governor Jefferson said inflation has started to come down, and the U.S. economy has started to slow in an orderly fashion.
EUR/USD (^EURUSD) on Monday fell by -0.32% and posted a 2-week low. A stronger dollar Tuesday weighed on the euro. EUR/USD fell Tuesday despite hawkish comments from ECB Governing Council members Kazimir and Kazaks, who said the ECB needs to keep raising interest rates.
ECB Governing Council member Kazimir said, "The battle against inflation is far from won," and the ECB will have to keep raising interest rates for longer than he anticipated.
ECB Governing Council member Kazaks said, "The ECB still has quite some ground to cover, and further rate increases will be necessary to tame inflation." Also, market bets on ECB rate cuts in the spring of 2024 are "significantly premature."
USD/JPY (^USDJPY) on Tuesday rose by +0.07%. The yen on Tuesday gave up overnight gains and fell modestly. The yen was under pressure from higher T-note yields and dollar strength. The yen Tuesday initially moved higher on comments from BOJ Governor Ueda, who said he intends to scrap the yield curve control program once “we have an inflation outlook indicating that sustainable and stable 2% inflation will be achieved.”
Tuesday’s economic news was bearish for the yen after Japan's Mar household spending unexpectedly fell -1.9% y/y, weaker than expectations of +0.8% y/y and the biggest decline in a year. Also, Mar labor cash earnings rose +0.8% y/y, weaker than expectations of +1.0% y/y.
June gold (GCM3) on Tuesday closed up +9.70 (+0.48%), and July silver (SIN23) closed up +0.064 (+0.25%). Precious metals on Tuesday closed moderately higher. Concerns about the health of the U.S. banking system and the U.S. debt limit impasse have boosted safe-haven demand for precious metals. That has led to strong fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 4-month high on Monday. However, gains in metals were limited due to a stronger dollar and higher global bond yields. Also, silver prices were under pressure on concerns about industrial metals demand after China’s trade news today showed China Apr imports fell more than expected.
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.
