The dollar index (DXY00) Tuesday rose by +0.65%. The dollar rallied moderately Tuesday and rebounded from Monday's 3-year low. Short covering emerged in the dollar Tuesday on trade deal optimism after US trade negotiators said they have made "significant progress" toward a bilateral trade deal with India following talks between Vice President Vance and Indian Prime Minister Modi. Gains in the dollar escalated Tuesday on possible signs of a thaw in the US-China trade standoff after Bloomberg News reported that Treasury Secretary Bessent told a closed-door investor summit that the tariff standoff with China is unsustainable, and he expects the situation to de-escalate.
Gains in the dollar are limited after Tuesday's news showed the US Apr Richmond Fed manufacturing survey of current conditions fell more than expected to a 5-month low. Also, a crisis of confidence in the dollar continues to be a problem due to fears that President Trump will try to fire Fed Chair Powell. The firing of Powell would question the independence of the Fed and further reduce confidence in the dollar, which is already under pressure from President Trump's aggressive trade tariffs that have prompted some foreign investors to liquidate their dollar assets.
The US Apr Richmond Fed manufacturing survey of current conditions index fell -9 to a 5-month low of -13, weaker than expectations of -7.
Minneapolis Fed President Kashkari said tariffs are likely to be at least somewhat inflationary, but it's too soon to judge what will happen with the path of interest rates.
Richmond Fed President Barkin said that due to tariffs, firms are defensive, delaying and deferring investments, and there are a lot of reasons to be worried about consumer spending.
On Tuesday, the International Monetary Fund (IMF) cut its global 2025 GDP forecast to +2.8% from a January estimate of +3.3% and warned that the outlook could deteriorate further due to US tariffs sparking a global trade war. The IMF cut its 2025 US GDP forecast to +1.8% from a January estimate of +2.7% and cut its Eurozone 2025 GDP forecast to +0.8% from a January estimate of +1.0%.
This week's market focus will be on any changes to US trade policies. On Wednesday, March new home sales are expected to climb +0.7% m/m to 681,000. The Fed Beige Book will also be released on Wednesday. Thursday brings March capital goods new orders nondefense ex-aircraft and parts report (expected +0.1% m/m). Also, March existing home sales on Thursday are expected to fall -2.8% m/m to 4.14 million. Friday brings the revised University of Michigan April consumer sentiment index (expected no change at 50.8).
The markets are discounting the chances at 11% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) Tuesday fell by -0.79%. The euro retreated Tuesday and fell back from Monday's 3-1/3 year high as a recovery in the dollar sparked long liquidation pressure in the euro. Also, dovish comments Tuesday from ECB Governing Council member Rehn weighed on the euro when he said Eurozone inflation is stabilizing at the 2% target, which could prompt the ECB to keep easing monetary policy. Losses in the euro accelerated Tuesday after the Eurozone Apr consumer confidence index fell more than expected to a 17-month low.
ECB Governing Council member Rehn said Eurozone inflation is stabilizing at the 2% target, and he sees the total tariff impact on Eurozone inflation as "modest."
The Eurozone Apr consumer confidence index fell -2.2 to a 17-month low of -16.7, weaker than expectations of -15.1.
Swaps are discounting the chances at 93% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.48%. The yen on Tuesday fell from a 7-month high against the dollar and posted moderate losses. Optimism for thaw in the US-China trade war sparked a rally in stocks and curbed safe-haven demand for the yen after Treasury Secretary Bessent said the tariff standoff with China is unsustainable and he expects the situation to de-escalate.
The yen on Tuesday initially moved higher on an increase in safe-haven demand for the yen due to a lack of confidence in the dollar with President Trump's threats to remove Fed Chair Powell. The yen also has carryover support from Monday when a Bloomberg report said BOJ policymakers see little need to change their existing stance of gradually raising interest rates.
June gold (GCM25) Tuesday closed down -5.90 (-0.174%), and May silver (SIK25) closed up +0.384 (+1.18%). Precious metals prices on Tuesday settled mixed. June gold fell from a contract high and nearest-futures (J25) gold slid from a record high of $3,485.60 an ounce as strength in the dollar sparked long liquidation in precious metals. Also, a sharp rally in stocks Tuesday curbed safe-haven demand for precious metals on optimism for a thaw in the US-China trade war after Bloomberg News reported that Treasury Secretary Bessent told a closed-door investor summit that the tariff standoff with China is unsustainable, and he expects the situation to de-escalate. Gains in silver were limited Tuesday after the IMF cut its global 2025 GDP forecast, a negative factor for industrial metals demand.
Gold prices on Tuesday initially rallied as foreign doubts about the dollar boosted the demand for precious metals as a store of value, with President Trump threatening to fire Fed Chair Powell. Also, dovish comments Tuesday from ECB Governing Council member Rehn supported precious metals when he said he sees total tariff impact on Eurozone inflation as "modest," bolstering the outlook for additional ECB interest rate cuts. In addition, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals after the Israel-Hamas ceasefire broke down and as the US continues strikes on Yemen's Houthi rebels. Silver also garnered support Tuesday in hopes of a thaw in the US-China trade war after Treasury Secretary Bessent said the tariff standoff with China is unsustainable and that he expects the situation to de-escalate.
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.
