The dollar index (DXY00) on Tuesday rose by +1.19%. The dollar index Tuesday rallied sharply to a 3-1/4 month high. Hawkish comments Tuesday from Fed Chair Powell sent the dollar soaring when he said the ultimate level of interest rates is likely to be higher than previously anticipated," and there's good reason for the FOMC to keep rates higher for longer. Weakness in stocks Tuesday also boosted the liquidity demand for the dollar.
Tuesday’s U.S. economic news was dovish for Fed policy and bearish for the dollar after Jan consumer credit rose +$14.799 billion, weaker than expectations of +$25.350 billion.
Fed Chair Powell said, "the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated." He also said, "if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes." In addition, he said there's good reason for the FOMC to keep rates higher for longer, as "the historical record cautions strongly against prematurely loosening policy."
EUR/USD (^EURUSD) on Tuesday fell by -1.19%. The euro Tuesday dropped to a 1-week low. Dollar strength Tuesday sparked long liquidation in the euro. Also, a decline in Eurozone inflation expectations is dovish for ECB policy and negative for EUR/USD after the ECB's monthly inflation expectations survey showed Jan consumer expectations declined.
Tuesday’s Eurozone economic news was supportive for the euro after German Jan factory orders unexpectedly rose +1.0% m/m, stronger than expectations of -0.7% m/m.
The ECB's monthly survey showed Jan consumer expectations for 12 months fell to 4.9% from 5.0% in Dec, and inflation expectations three years ahead decreased to 2.5% from 3.0% in Dec.
USD/JPY (^USDJPY) on Tuesday rose by +0.85%. The yen Tuesday tumbled to a 2-1/4 month low. Central bank divergence undercut the yen after Fed Chair Powell Tuesday said the Fed is likely to raise interest rates higher and potentially faster than previously anticipated. That is in contrast to the BOJ, which is expected to maintain QE and record-low interest rates. Also, Tuesday’s economic news showed a plunge in Japanese wages that is dovish for BOJ policy and negative for the yen.
Japan Jan real cash earnings fell -4.1% y/y, weaker than expectations of -3.2% y/y and the biggest decline in 8-1/2 years.
April gold (GCJ3) on Tuesday closed down -34.60 (-1.87%), and May silver (SIK23) closed down -0.936 (-4.43%). Precious metals Tuesday sold off sharply, with silver sinking to a 4-1/4 month low. A rally in the dollar index Tuesday to a 3-1/4 month high sparked long liquidation in metals prices. Also, hawkish comments Tuesday from Fed Chair Powell undercut metals prices when he said, “the ultimate level of interest rates is likely to be higher than previously anticipated." In addition, the continued liquidation of long gold positions in ETFs weighed on gold prices after holdings of gold in ETFs fell to a new 2-3/4 year low Monday.
More Precious Metal News from Barchart
- Stocks Fall on Hawkish Powell
- Dollar Slips on Strength in the Euro
- Stocks Rise on Strength in Apple and Lower Bond Yields
- Dollar Follows T-Note Yields Lower
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.
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