The dollar index (DXY00) on Tuesday fell by -0.16%.  The dollar on Tuesday fell back from a 1-1/2 week high and posted moderate losses.  Weaker-than-expected U.S. economic news Tuesday on the Q4 employment cost index, the Jan MNI Chicago PMI, and Jan consumer confidence were dovish for Fed policy and undercut the dollar.  Also, strength in stocks Tuesday curbed liquidity demand for the dollar.  In addition, expectations for the Fed to slow its pace of rate hikes for a second straight meeting Wednesday weighed on the dollar.  The FOMC is expected to announce a 25 bp increase in the fed funds target range on Wednesday, down from a 50 bp rate hike last month and a 75 bp rate hike in November.

Tuesday’s U.S. economic reports were below expectations and bearish for the dollar.  The Q4 employment cost index rose +1.0% q/q, weaker than expectations of +1.1% q/q and the slowest pace of increase in a year. Also, the Jan MNI Chicago PMI unexpectedly fell -0.8 to 44.3, weaker than expectations of an increase to 45.0. In addition, the Conference Board U.S. Jan consumer confidence index unexpectedly fell -1.9 to 107.1, weaker than expectations of an increase to 109.0.

EUR/USD (^EURUSD) on Tuesday rose by +0.12%.   The euro Tuesday recovered from a 1-1/2 week low and moved slightly higher after the dollar weakened.  Also, Tuesday’s economic reports that showed an unexpected expansion in Eurozone Q4 GDP and an unexpected decline in German Jan unemployment were bullish for EUR/USD. Gains in the euro were limited after Tuesday’s economic news showed the German Dec retail sales and France's Dec consumer spending fell more than expected. 

Eurozone Q4 GDP rose +0.1% q/q and +1.9%y/y, stronger than expectations of -0.1% q/q and +1.7% y/y.

German Dec retail sales fell -5.3% m/m, weaker than expectations of -0.2% m/m and the steepest decline in 17 months.

German Jan unemployment unexpectedly fell -22,000, the biggest decline in 11 months, and a stronger labor market than expectations of a +5,000 increase.

France Dec consumer spending unexpectedly fell -1.3% m/m, weaker than expectations of +0.3% m/m.

USD/JPY (^USDJPY) on Tuesday fell by -0.18%.  The yen Tuesday rose moderately on a decline in T-note yields. Also, stronger-than-expected Japanese economic reports Tuesday on Jan consumer confidence, Dec industrial production, and Dec retail sales were bullish for the yen.

The Japan Jan consumer confidence index rose +0.7 to a 5-month high of 31.0, stronger than expectations of 30.5.

Japan Dec industrial production fell -0.1% m/m, stronger than expectations of -1.0% m/m.

Japan Dec retail sales rose +1.1% m/m, stronger than expectations of +0.7% m/m. 

February gold (GCG3) on Tuesday closed up +6.60 (+0.34%), and March silver (SIH23) closed up +0.103 (+0.43%).  Precious metals Tuesday posted moderate gains.  Dollar weakness Tuesday was bullish for metals prices.  Also, lower global bond yields Tuesday were supportive for metals prices.  In addition, expectations that the Fed will slow its pace of interest rate hikes to 25 bp after Wednesday’s 2-day FOMC meeting is supportive for metals.  However, gains in metals were limited as strength in stocks Tuesday reduced the safe-haven demand for precious metals. 

• Stocks Climb as U.S. Labor Costs Ease
• Dollar Rebounds as Stocks Falter
• Stocks Fall as Higher Bond Yields Weigh on Tech
• Dollar Firms with T-note Yields