” The dollar index (DXY00) Tuesday fell by -1.06%. The dollar on Tuesday extended Monday’s losses to a 2-3/4 month low. The dollar fell on concern that US tariffs will spark a trade war that undercuts US economic growth. Also, Tuesday’s rally in EUR/USD to a 2-3/4 month high undercut the dollar. The dollar had some support for increased liquidity demand due to Tuesday’s slide in equity markets.
Hawkish comments from New York Fed President Williams were supportive for the dollar when he said that there’s still a lot of uncertainty about US tariff policy and what other countries will do in response, but they’ll “likely lead to somewhat higher prices this year.”Market attention this week will focus on tonight’s address to a joint session of Congress by President Trump. On Wednesday, the Feb ISM services index will be released (expected -0.1 to 52.7). On Friday, Feb nonfarm payrolls are expected to rise by +160,000, and the Feb unemployment rate is expected to remain unchanged at 4.0%. Meanwhile, Feb average hourly earnings are expected to be unchanged from Jan at +4.1% y/y. Also on Friday, Fed Chair Powell gives the keynote speech on the economic outlook at Chicago Booth’s 2025 US Monetary Policy Forum.
The markets are discounting the chances at 7% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Tuesday rose by +1.20%. The euro rallied to a 2-3/4 month high Tuesday after the EU said it would propose loans to increase defense spending in the region, bolstering expectations that more spending would be positive for the Eurozone economy. The euro was supported by Tuesday’s report that the Eurozone Jan unemployment rate remained at a record low. The euro raced to its high Tuesday afternoon after Germany announced the creation of a 500-billion-euro special defense fund and said it would reform its debt brake to allow for more defense outlays.
The Eurozone Jan unemployment rate was unchanged at a record low of 6.2%, showing a stronger labor market than expectations of 6.3%.
