US Currency Strengthens, Precious Metals Decline due to Trade Optimism Enhancement
The Dollar Index (DXY00) surged 0.59% on Tuesday following President Trump's decision to delay a 50% tariff on US importers of EU goods until July 9. The tariff extension's positive implications for trade negotiations and economic stability contributed to the dollar's strength. Additionally, Minneapolis Fed President Kashkari's hawkish comments supporting current interest rates provided further support for the dollar.
The Conference Board's US consumer confidence index surpassed expectations, rallying to a 3-month high of 98.0 in May, boosting the dollar's gains. The index's increase indicated optimism among consumers about the health of the US economy.
However, the dollar's growth was capped due to unexpected declines in US capital goods new orders and tight liquidity caused by Tuesday's stock rally. The new orders for nondefense ex-aircraft and parts fell by 1.3% month-over-month, marking a decreased demand for capital goods in April.
EU's economic outlook remained relatively positive, with the Eurozone's May economic confidence indicator inching up to 94.8, outpacing the forecasted 94.1. The euro's depreciation against the dollar occurred despite these encouraging economic indicators, as the dollar's strength and hawkish ECB policy expectations kept losses in check.
The yen retreated from a 4-week high against the dollar on Tuesday following a Bloomberg News report indicating that the Japanese Finance Ministry could potentially reduce debt issuance. The USD/JPY exchange rate rose by 0.99% as a result.
Gold and silver prices fell on Tuesday, with gold closing lower by 1.94% and silver dropping 0.89%. Precious metals took a dip due to easing trade tensions and dollar strength, as well as hawkish central bank comments suggesting that interest rates may remain steady.
While the tariff extension positively impacted the dollar, its influence on the USD/JPY and the EUR/USD remains unclear, as other economic factors and central bank policies can also impact exchange rates.
Investors might find opportunities in technology sectors, as the dollar's strength, facilitated by President Trump's tariff decision and hawkish central bank comments, could boost the profits of US tech companies exporting their products. Conversely, the depreciation of the euro against the dollar could potentially attract investors to European technology companies, especially if the Eurozone's economic growth continues to improve.
