The dollar index (DXY00) Tuesday rose by +0.53%.  The dollar Tuesday rose moderately on better-than-expected US economic news on Apr Empire manufacturing survey general business conditions and the Mar import price index ex-petroleum.  Also, comments Monday evening from Atlanta Fed President Bostic boosted the dollar when he said he favors keeping Fed policy steady.  Gains in the dollar are limited as the dollar faces a confidence crisis.  The US tariff turmoil diminishes the dollar’s reserve-currency status and has prompted some foreign investors to liquidate their dollar assets.

The US Apr Empire manufacturing survey of general business conditions rose +11.9 to -8.1, stronger than expectations of -13.5.

The US Mar import price index ex-petroleum was unchanged m/m, weaker than expectations of +0.3% m/m.

Monday evening, Atlanta Fed President Bostic said, “The specific place that the economy will land depends critically on the details of where policy lands,” therefore, the Fed must wait for further clarity on President Trump’s policies before adjusting interest rates.

The markets are discounting the chances at 20% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.

EUR/USD (^EURUSD) Tuesday fell by -0.58%.  The euro came under pressure Tuesday after the German Apr ZEW survey expectations of economic growth fell more than expected to a 1-3/4 year low.  Also, a stronger dollar on Tuesday weighed on the euro.  In addition, expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting are bearish for the euro.  Losses in the euro accelerated Tuesday when European Union (EU) trade chief Sefvovic said the EU and US had made little progress in bridging trade differences.

The German Apr ZEW survey expectations of economic growth fell -65.6 to a 1-3/4 year low of -14.0, weaker than expectations of 10.0.

Eurozone Feb industrial production rose +1.1% m/m, stronger than expectations of +0.3% m/m and the largest increase in 6 months.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at Thursday’s policy meeting.

USD/JPY (^USDJPY) Tuesday rose by +0.08%.  The yen on Tuesday gave up early gains and turned lower after Japanese Finance Minister Kato said the government isn’t considering compiling a fresh economic package or an extra budget at this time.  The yen initially moved higher Tuesday on carryover support from Monday when Kyodo News reported that Prime Minister Ishiba will request a supplementary budget draft for fiscal 2025 as early as this week in response to President Trump’s tariffs and rising prices.  Also, the escalation of the US-China trade war boosted safe-haven demand for the yen after Bloomberg reported that China had ordered its airlines not to take any further deliveries of Boeing’s jets. 

June gold (GCM25) Tuesday closed up +14.10 (+0.44%), and May silver (SIK25) closed up +0.130 (+0.40%).  Precious metals posted moderate gains on Tuesday, with silver climbing to a 1-1/2 week high.  Escalation of the trade war has boosted safe-haven demand for precious metals after the US Commerce Department said it had initiated probes into the national security impact of semiconductor and pharmaceutical imports, a precursor to imposing tariffs.  China also ordered its airlines not to take any further deliveries of Boeing’s jets.  Silver rose after President Trump said he is exploring possible temporary exemptions to tariffs on imported vehicles and parts, a positive factor for industrial metals demand.  Precious metals have support as a store of value on expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting.  Finally, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals after the Israel-Hamas ceasefire broke down and as the US continues strikes on Yemen’s Houthi rebels.  Fund buying of gold supports prices after long gold positions in ETFs rose to a 1-1/2 year high Monday. 

Tuesday’s stronger dollar limited the upside in precious metals.  Also, hawkish comments from Atlanta Fed President Bostic were negative for precious metals when he said he favors the Fed keeping monetary policy steady.  Gains in silver are limited by concern that an escalation of the trade war could derail the global economy and the demand for industrial metals.