The dollar index (DXY00) Tuesday fell by -0.35%. The dollar was under pressure from concern that President Trump's 25% tariffs on all steel, aluminum, and finished metals imports into the US will encourage retaliation that curbs US economic growth. Losses in the dollar were limited by higher T-note yields that strengthened the dollar’s interest rate differentials. Also, hawkish comments Tuesday from Fed Chair Powell and Cleveland Fed President Hammack were positive for the dollar when they said interest rates are on hold until inflation falls further.
Fed Chair Powell said, "With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance."
Cleveland Fed President Hammack said it's appropriate for the Fed to keep interest rates steady for "some time" while policymakers await further downward progress on inflation and analyze the economic effects of new government policies.
The markets are discounting the chances at 6% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Tuesday rose by +0.52%. The euro rallied moderately Tuesday on some better-than-expected Eurozone economic news that showed the French Q4 unemployment rate unexpectedly declined, a hawkish factor for ECB policy. Gains in the euro are limited by concern that an escalating trade war could derail the Eurozone economy after the US imposed a 25% tariff on US steel, aluminum, and finished metals imports. Also, European Commission President Von der Leyen immediately said, "unjustified tariffs on the EU will not go unanswered."
The French Q4 ILO mainland unemployment rate unexpectedly fell -0.1 to 7.1%, showing a stronger labor market than expectations of an increase to 7.3%.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.32%. The yen posted moderate losses Tuesday and was under pressure from higher T-note yields. Also, the 25% US tariffs on all steel, aluminum, and finished metal imports into the US undercut the yen. Trading activity in the yen was muted Tuesday, with markets in Japan closed for the National Foundation Day holiday.
April gold (GCJ25) Tuesday closed down -1.80 (-0.062%), and March silver (SIH25) closed down -0.169 (-0.52%). Precious metals Tuesday gave up an early advance and posted modest losses. April gold Tuesday fell from a contract high and turned lower, and nearest-futures (G25) gold retreated from an all-time high of $2,945.40 an ounce. Hawkish comments Tuesday from Fed Chair Powell and Cleveland Fed President Hammack sparked long liquidation in precious metals after they said interest rates are on hold until inflation falls further. Also, higher global bond yields Tuesday undercut precious metals. Silver prices were also weighed down by concern that additional US tariffs would start a trade war that derails the global economy and the demand for industrial metals.
Precious metals Tuesday initially moved higher due to a weaker dollar and an increase in safe-haven demand after the US imposed 25% tariffs on US steel, aluminum, and finished metals imports. Gold also has carryover support from Monday when China announced a pilot program to allow insurance companies to invest as much as 1% of their assets in bullion, which could translate into a potential 200 billion yuan ($27.4 billion) of gold buying.
