The Dollar Index (DXY00) fell -0.14% on Tuesday. The dollar gave up overnight gains and edged lower on Tuesday as T-note yields fell after the weekly ADP employment change showed the lowest number of new jobs added in five weeks, a softening factor for Fed policy. The dollar’s decline extended on Tuesday after a rise in stocks reduced demand for dollar liquidity.
The dollar limited losses since February, pending domestic sales rose unexpectedly, and the war against Iran entered its eighteenth day on Tuesday with no end in sight, boosting safe-haven demand for the dollar.
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ADP weekly employment change increased by +9,000 for the four weeks ending February 28, the smallest increase in five weeks and a sign of a slowdown in hiring by US employers.
In the US, pending home sales unexpectedly increased by +1.8% per month in February, stronger than the -0.6% per month decline.
The 2-day FOMC meeting started on Tuesday, and the market expects the Fed to keep the federal funds target range unchanged at 3.50%-3.75%. With the January core PCE price index, the Fed’s preferred inflation gauge, at 3.1%, well above the Fed’s 2.0% target, the Fed is expected to signal a further extended pause.
The swap markets are discounting -25% to a 3bp rate cut at the Tue/Wed FOMC meeting.
The dollar continues to decline due to the poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) rose +0.30% on Tuesday. On Tuesday, the weakness of the dollar supported the rise in the euro. However, the euro’s gains were limited after today’s economic news, with economic growth expectations falling more than expected to an 11-month low in the German MAR ZEW survey. Furthermore, the +2% rise in crude oil prices on Tuesday is negative for the euro, as higher crude oil prices are bearish for the Eurozone economy, which relies heavily on energy imports.
Economic growth expectations in the German MAR ZEW survey dropped from -58.8 to an 11-month low of -0.5, weaker than expectations of 39.2.
Swaps are discounting a 25% chance of a +25 bp rate hike by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) fell -0.03% on Tuesday. The yen edged up slightly on Tuesday after Japan’s January tertiary industry index recorded its biggest rise in 5.25 years, a supportive factor for the yen. Additionally, lower T-notes yields on Tuesday were bullish for the yen. Gains in the yen were limited by a +2% rise in crude oil prices on Tuesday, which is negative for Japan’s economy, which is dependent on energy imports.
Threats of currency intervention are a positive for the yen after Japanese Finance Minister Satsuki Katayama said today that recent currency moves are not in line with fundamentals, and that authorities are fully prepared to respond at any time.
Japan’s January tertiary industry index rose +2.5% to 1.7%, stronger than expectations of +0.9% and the largest increase in 5.25 years.
Markets are discounting a +4% chance of a BOJ rate hike at the next meeting on Thursday.
April COMEX gold (GCJ26) closed up +6.00 (+0.12%) on Tuesday, and May COMEX silver (SIK26) closed down -0.761 (-0.94%).
Gold and silver prices gave up early gains on Tuesday and closed at mixed levels. Tuesday’s rally in stocks offset demand for safe-haven precious metals. Additionally, the +2% rally in crude oil prices on Tuesday boosts inflation prospects which potentially prevents the Fed from cutting interest rates, which is a bearish factor for the precious metals.
Precious metals edged higher early on Tuesday due to a weaker dollar and a drop in T-note yields. Additionally, precious metals are seeing strong safe-haven demand as the war against Iran entered its eighteenth day on Tuesday with no end in sight. Additionally, uncertainty over US tariffs, US political turmoil, large US deficits and government policy uncertainty are driving demand for precious metals as stores of value.
Recent precious metals fund liquidations are bearish for prices, as long holdings in gold ETFs fell to a 2-month low on Monday after climbing to a 3.5-year high on Feb. 27. Additionally, long holdings in silver ETFs fell to a 4-month low on Monday after reaching a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following recent news that bullion held in China’s PBOC reserves increased by +40,000 ounces in January to 74.19 million troy ounces, the fifteenth consecutive month the PBOC has increased its gold reserves.
On the date of publication, Rich Asplund did not have (directly or indirectly) any positions in any securities mentioned in this article. All information and data in this article is for informational purposes only. Please see the Barchart Disclosure Policy here for more information.
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