US dollar tries to recover from five-week trough
The US dollar rose in European trade on Tuesday for the first time in three sessions against a basket of major rivals, as it tries to recover from five-week lows on short-covering.
Now traders await important US data later today to assess the odds of future Fed rate cuts.
The Index
The dollar index rose 0.5% to 99.44, with a session-low at 98.78.
On Monday, the index lost 0.2%, plumbing a five-week trough at 98.69 on US debt concerns.
US Rates
According to the Fedwatch tool, the odds of a June 0.25% interest rate cut by the Federal Reserve stood at just 6%.
The odds of a July rate cut stood at 25%.
Markets now expect 50 basis points of total rate cuts by the end of the year, starting October.
Analysts point to persistent concerns about future US government deficits as a major factor behind the weakness of the dollar as investors flee US assets.
Gold backs off two-week high as dollar rebounds
Gold prices fell in European trade on Tuesday on track for the second loss in a row, backing off two-week highs on profit-taking as the dollar rebounded against major rivals.
Traders now await important US data later today to gather more clues on the odds of Fed rate cuts this year.
The Price
Gold prices fell 1.5% today to $3292 an ounce, with a session-high at $3350.
On Monday, gold lost 0.5% on profit-taking away from a two-week high at $3365.
US Dollar
The dollar index rose over 0.45% on Tuesday, on track for the first profit in three days away from a five-week trough at 98.69 against a basket of major rivals.
A stronger dollar makes the greenback-denominated commodity futures costlier to holders of other currencies.
The dollar has rebounded as concerns about a US recession receded with Trump putting off EU tariffs until July 9.
US Rates
According to the Fedwatch tool, the odds of a June 0.25% interest rate cut by the Federal Reserve stood at just 6%.
The odds of a July rate cut stood at 25%.
Markets now expect 50 basis points of total rate cuts by the end of the year, starting October.
SPDR
Gold holdings at the SPDR Gold Trust remained unchanged yesterday at 922.46 tons.
Euro hovers near four-week high after Lagarde's remarks
The euro rose in European trade on Tuesday on track for the third straight session against the US dollar, and about to hit a four-week high amid concerns about US financial stability.
Recent bullish remarks by European Central Bank President Christine Lagarde provided more positive momentum for the euro, and underscored investor confidence in the EU.
The Price
The EUR/USD price rose 0.25% to $1.1407, with a session-low at $1.1381.
The pair rose 0.2% on Monday, the second profit in a row, hitting a four-week high at $1.1419, as Trump delayed imposing 50% tariffs on the EU until July 9.
Lagarde
ECB President Christine Lagarde said the euro could be an alternative to the dollar, which would bring about great benefits to the 20-country bloc if governments managed to bolster its financial and security structures.
Lagarde said that ongoing changes open the door to what is called “euro’s global moment”, but it’ll have to earn it.
She said that boosting the euro’s global role would simultaneously require a boost to European military power to underpin the continent’s ability to support its partners and strategic alliances.
Lagarde added that official investors don’t only look for economic stability but also for geopolitical guarantees, and they tend to invest in assets of countries that are considered highly trusted security partners.
She called for making the euro the favored currency in pricing international trade bills, through accelerating new trade deals and boosting liquidity deals with the ECB.
European Rates
Recent eurozone data showed inflation rose past estimates in April, renewing pressures on the European Central Bank’s policymakers.
Following the data, the odds of an ECB rate cut in June fell from 60% to 50%.
Yen rushes to four-week high on strong demand
The Japanese yen rose in Asian trade on Tuesday against a basket of major rivals, resuming gains against the dollar after a short hiatus and hitting a four-week high on strong haven demand amid concerns about US debt levels.
Gains are also bolstered by the increasing odds of a Japanese interest rate hike in June in response to mounting inflationary pressures.
The Price
The USD/JPY price fell 0.5% today to 142.11, the lowest since April 29, with a session-high at 142.98.
The yen lost 0.2% on Monday against the greenback, the second loss in three days.
US Debt
US President Donald Trump said on Sunday that his tax reform bill will likely undergo big changes in the Senate.
According to the Congressional Budget Office, the bill will add $3.8 trillion to the government’s $36.2 trillion debt pile in the next ten years.
The huge US debt burden is back in the spotlight after Moody’s US credit rating downgrade last week and weak demand on government notes.
Investor confidence in US assets was further damaged by President Trump’s aggressive tariff policies in recent months.
Japanese Rates
Earlier Japanese data showed consumer prices rose 3.5% in April, the highest pace since early y023, beating estimates of 3.4%, and up from 3.2% in March.
Following the data, the odds of a Japanese 0.25% interest rate hike in June rose from 30% to 40%.
Bank of Japan Deputy Governor Shinichi Uchida said the bank will continue to raise interest rates if the economy recovers from the negative impact of US tariffs, however he still cautioned that the economic outlook remains highly uncertain.
Now traders await important Japanese data on inflation, unemployment, and wages to gather more clues.