The dollar index (DXY00) climbed to a 13-month high on Tuesday, finishing the session up by +0.36% as equity markets plunged sharply.
A broad selloff in stocks drove investors toward the dollar, amplifying liquidity demand for the currency across global markets.
The dollar also carried support from the previous Wednesday, when the FOMC projected higher interest rates later this year, reinforcing bullish sentiment for the greenback.
Tuesday’s U.S. economic data was mixed, as the June S&P manufacturing PMI unexpectedly rose +0.6 to 55.7, marking the strongest pace of expansion in four years and beating expectations of a decline to 54.6.
Offsetting that strength, the June Richmond Fed manufacturing survey of current conditions fell -9 to 4, coming in weaker than the expected reading of 8.
Swaps markets are currently pricing in a 36% probability of a +25 basis point rate hike at the next FOMC meeting scheduled for July 28-29.
EUR/USD (^EURUSD) tumbled to a one-year low on Tuesday, closing down -0.42%, extending losses driven by dovish comments from ECB President Lagarde, who said she sees no need for a more forceful ECB response to the U.S.-Iran war.
ECB Chief Economist Philip Lane pushed back with a more hawkish tone, warning that ECB officials face the risk that inflation will hover above their goal “for quite some time.”
The Eurozone June S&P manufacturing PMI fell -0.3 to 51.3, missing expectations, though the composite PMI rose +1.0 to 49.5, beating forecasts of 49.2.
Eurozone May new car registrations rose +3.2% year-on-year to 955,000 units, representing the fourth consecutive monthly increase for the bloc’s automotive sector.
Markets are pricing in just a 10% chance of a +25 basis point ECB rate hike at its next policy meeting on July 23, reflecting lingering uncertainty over the central bank’s direction.
USD/JPY (^USDJPY) dipped -0.01% on Tuesday, with the yen drawing modest support from stronger Japanese PMI data, as the June S&P manufacturing PMI rose +0.4 to 54.9 and the services PMI climbed +1.8 to 51.8.
Intervention risks in the yen are rising after Japanese Finance Minister Satsuki Katayama confirmed she spoke with U.S. Treasury Secretary Scott Bessent, with both sides agreeing to take “bold” steps on currencies if needed and stating that the nations are increasingly “aligned” on foreign-exchange policy.
With the yen trading firmly above 160 per dollar, the risk of direct market intervention has intensified, as Japanese authorities have acted at that threshold multiple times in recent history.
BOJ Deputy Governor Uchida signaled last week that the central bank would assess the impact of rate hikes on the economy, suggesting it will move at a glacial pace on policy tightening, with markets pricing just a 3% chance of a hike at the July 31 meeting.
August COMEX gold (GCQ26) closed down -53.30, or -1.27%, while July COMEX silver (SIN26) dropped -3.513, or -5.36%, with gold hitting a 1.5-week low and silver sliding to a 3-month low.
The dollar’s surge to a 13-month high weighed heavily on precious metals, while the equity market selloff also triggered margin call liquidations that forced investors to unwind long positions in gold and silver.
Long holdings in gold ETFs fell to a 7.5-month low last Wednesday, after reaching a 3.5-year high on February 27, while long holdings in silver ETFs fell to an 11-month low last Friday from the 3.5-year high posted on December 23.
China’s PBOC provided a floor of support for gold prices, with bullion held in its reserves rising by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months and the nineteenth consecutive month the PBOC has added to its gold holdings.
