Dollar Climbs and Gold Retreats on Trade Optimism

Globe and Mail

2 days ago

The dollar index (DXY00) Tuesday rose by +0.59%. The dollar moved higher Tuesday after President Trump over the weekend extended the deadline for a 50% tariff on US importers of EU goods by about 5 weeks to July 9 from June 1. The dollar also garnered support from hawkish comments Tuesday by Minneapolis Fed President Kashkari, who said he favors 'maintaining the fed funds rate at current levels.' The dollar extended its gains after the Conference Board's US May consumer confidence index rose more than expected to a 3-month high.
Gains in the dollar were limited Tuesday after the US Apr capital goods new orders nondefense ex-aircraft and parts fell more than expected. Also, Tuesday's stock rally curbed liquidity demand for the dollar. The dollar still has some negative carryover from last Thursday when the House passed President Trump's tax and spending plan, which would add to the burgeoning US budget deficit.
US Apr capital goods new orders nondefense ex-aircraft and parts fell -1.3% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 6 months.
The US Mar S&P CoreLogic composite-20 home price index rose +4.07% y/y, weaker than expectations of 4.50% y/y and the smallest increase in 1-2/ years.
The Conference Board's US May consumer confidence index rose +12.3 to a 3-month high of 98.0, stronger than expectations of 87.1.
The US May Dallas Fed manufacturing survey general business activity index rose +20.5 to -15.3, stronger than expectations of -23.1.
Minneapolis Fed President Kashkari said he favors maintaining the fed funds rate at current levels until there is more clarity on the path of tariffs and their impact on prices.
The markets are discounting the chances at 6% for a -25 bp rate cut after the June 17-18 FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.46%. Tuesday's rally in the dollar undercut the euro. Losses in the euro were contained following Tuesday's better-than-expected Eurozone economic news, which showed strength in the economy. Additionally, hawkish comments from ECB Governing Council member Holzmann on Tuesday supported the euro since he stated that he doesn't support additional ECB interest rate cuts.
The Eurozone May economic confidence indicator rose +1.0 to 94.8, stronger than expectations of 94.1.
Eurozone Apr new car registrations rose +1.3% y/y to 925,000 units, the first increase in four months.
ECB Governing Council member Holzmann said the ECB moving interest rates 'further south would be more risky than staying where we are and waiting until September.'
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.99%. The yen on Tuesday retreated from a 4-week high against the dollar and fell sharply after Japanese government bond yields plunged when Bloomberg News reported that Japan's finance ministry sent a questionnaire to market participants regarding appropriate issuance amounts for government bonds, a sign the finance ministry may seek to reduce debt issuance.
The yen on Tuesday initially rallied to a 4-week high against the dollar after economic news showed Japan Apr PPI services prices rose more than expected, a hawkish factor for BOJ policy. Also, Tuesday's comments from BOJ Governor Ueda supported the yen when he said the BOJ will continue to tighten monetary policy as long as its objectives are met. In addition, lower T-note yields on Tuesday were bullish for the yen.
Japan Apr PPI services prices rose +3.1% y/y, stronger than expectations of +3.0% y/y.
BOJ Governor Ueda said, 'We will adjust the degree of monetary easing as needed' to ensure that the BOJ achieves its sustainable price goal if incoming news gives authorities greater confidence that their economic expectations will be met.
June gold (GCM2 5) Tuesday closed down -65.40 (-1.94%), and July silver (SIN2 5) closed down -0.298 (-0.89%). Precious metals retreated on Tuesday due to an easing of trade tensions after President Trump extended the deadline on 50% tariffs on EU goods to July 9 from June 1. Also, dollar strength and Tuesday's sharp rally in stocks have curbed safe-haven demand for precious metals. In addition, hawkish central bank comments on Tuesday weighed on precious metals after Minneapolis Fed President Kashkari and ECB Governing Council member Holzmann said they favor keeping interest rates steady, and BOJ Governor Ueda said the BOJ will keep raising interest rates as long as its objectives are met.
Weakness in Tuesday's US economic news was a bearish factor for industrial metals demand and silver prices. Apr capital goods new orders nondefense ex-aircraft and parts posted its biggest decline in 6 months, and the Mar S&P CoreLogic composite-20 home price index posted its smallest increase in 1-1/2 years.
Lower global bond yields on Tuesday were supportive of precious metals. Also, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals. Silver is also pressured by concern that an escalation of the global trade war would dampen economic activity and demand for industrial metals.