Dollar Edges Lower on Waning US Consumer Confidence

The dollar index (DXY00) on Tuesday fell by -0.10%.  The dollar Tuesday fell from a 2-1/2 week high and posted modest losses.  The dollar is also under pressure on reports that US reciprocal tariffs scheduled to be imposed on April 2 would be more targeted than widespread tariffs originally threatened, easing inflation concerns that could allow the Fed to keep cutting interest rates.  The dollar remained lower on US economic news that showed Mar consumer confidence fell to a 4-year low, and Feb new home sales rose less than expected.  Hawkish comments from Fed Governor Kugler limited losses in the dollar when she said she supports holding interest rates steady for "some time."

The US Jan S&P CoreLogic composite-20 home price index rose +4.67% y/y, below expectations of +4.80% y/y but the fastest pace of increase in 5 months.

US Feb new home sales rose +1.8% m/m to 676,000, weaker than expectations of 680,000.

The Conference Board's US Mar consumer confidence index fell -7.2 to a 4-year low of 92.9, weaker than expectations of 94.0.

The US Mar Richmond Fed manufacturing survey of current conditions fell -10 to -4, weaker than expectations of 1.

Fed Governor Kugler said she is "paying close attention to the acceleration of price increases and higher inflation expectations, especially given the recent bout of inflation in the past few years," and she supports holding interest rates steady for "some time."

This week's attention will focus on Wednesday's report on Feb capital goods new orders nondefense ex-aircraft and parts (expected +0.2% m/m).  On Thursday, Q4 GDP is expected to be unrevised at +2.3% (q/q annualized), and Mar pending home sales are expected +1.0% m/m.  On Friday, Feb personal spending is expected +0.5% m/m, and Feb personal income is expected +0.4% m/m.  Also, the Feb core PCE price index, the Fed's preferred inflation gauge, is expected +0.3% m/m and +2.7% y/y.  Finally, on Friday, the revised Mar University of Michigan consumer sentiment index is expected to remain unchanged at 57.9.

The markets are discounting the chances at 16% for a -25 bp rate cut after the May 6-7 FOMC meeting.

EUR/USD (^EURUSD) Tuesday fell by -0.07%.  The euro gave up an early advance Tuesday and fell to a 2-1/2 week low on dovish comments from ECB Governing Council member Villeroy de Galhau, who said the disinflation trend in Europe is "solid" and the ECB has scope for further interest rate cuts.

The euro Tuesday initially moved higher and garnered support after the German Mar IFO business climate survey rose to an 8-month high.  Also, hawkish comments Tuesday from ECB Governing Council members Kazimir and Muller boosted the euro when they said they could not rule out a pause to the ECB's interest rate cuts.

Eurozone Feb new car registrations fell -3.4% y/y to 854,000 units, the largest decline in 5 months.

The German Mar IFO business climate survey rose +1.4 to an 8-month high of 86.7, right on expectations.

ECB Governing Council member Villeroy de Galhau said the ECB has scope for further interest rate cuts due to a "solid trend" of disinflation in Europe.

ECB Governing Council member Kazimir said the ECB "is already now in the neutral rate zone," and he can't rule out a pause in interest rate cuts.

ECB Governing Council member Muller said he "can't rule out a pause in the ECB's rate cutting," and any further rate cuts will depend on the nature of the tariffs that the US is due to announce soon.

Swaps are discounting the chances at 69% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

USD/JPY (^USDJPY) Tuesday fell by -0.53%.  The yen recovered from a 3-week low against the dollar Tuesday and posted moderate gains.  Higher Japanese government bond yields have strengthened the yen's interest rate differentials and are supporting the yen after the 10-year JGB bond yield climbed to a 16-year high Tuesday of 1.587%.  Gains in the yen accelerated after T-note yields gave up an early advance and turned lower.

April gold (GCJ25) Tuesday closed up +10.30 (+0.34%), and May silver (SIK25) closed up +0.737 (+2.20%).  Precious metals settled moderately higher on Tuesday due to a weaker dollar.  Precious metals also have support on hopes that US reciprocal tariffs scheduled for April 2 would be more targeted than previously expected, which eases concerns about inflation and could allow the Fed to keep cutting interest rates, a dovish factor for precious metal.  Tuesday's slump in US March consumer confidence to a 4-year low is a dovish factor for Fed policy and bullish for precious metals. Ramped-up geopolitical risks in the Middle East are also boosting safe-haven demand for precious metals as Israel continues airstrikes across Gaza, ending a two-month ceasefire with Hamas, and as the US continues to launch strikes on Yemen's Houthi rebels.  In addition, fund buying of gold supports prices after long gold positions in ETFs rose to a 17-month high Monday. 

Hawkish central bank comments Tuesday were bearish for precious metals.  Fed Governor Kugler said she supports holding interest rates steady for "some time."  Also, ECB Governing Council members Kazimir and Muller said they cannot rule out a pause in the ECB's interest rate cuts.