The dollar index (DXY00) on Tuesday fell by -0.19%.  The dollar Tuesday retreated from a 4-week high and posted moderate losses. Tuesday’s rally in stocks undercut liquidity demand for the dollar.  The dollar Tuesday initially climbed to a 4-week high as T-note yields rose on hawkish comments from Fed Chair Powell and Minneapolis Fed President Kashkari, who said last Friday’s strong U.S. jobs report shows the need for more rate hikes.

Tuesday’s economic news was mixed for the dollar.  On the bearish side, Dec consumer credit rose +$11.565 billion, weaker than expectations of +$25.000 billion and the smallest increase in nearly two years. Conversely, the Dec trade deficit of -$67.4 billion was slightly narrower than the consensus of -$68.5 billion.

Fed comments Tuesday were hawkish for policy and bullish for the dollar.  Fed Chair Powell said the labor market is "extraordinarily strong" and "we are going to need to do further interest-rate increases" as we haven't achieved a sufficiently restrictive stance yet.  He added that if strong labor data persist and inflation climbs more, the Fed may need to raise rates to higher than previously thought. 

Also, Minneapolis Fed President Kashkari said January’s strong labor-market report shows that the Fed needs to keep raising interest rates and "right now he's still around 5.4%," referring to his forecast for how high interest rates need to go to curb inflation.

EUR/USD (^EURUSD) on Tuesday fell by -0.08%.   The euro Tuesday fell to a 4-week low after economic news showed German Dec industrial production fell more than expected by the most in 9 months.  However, EUR/USD recovered most of its losses on hawkish comments from ECB Governing Council member and Bundesbank President Nagel, who said more "significant" rate hikes from the ECB are needed.

German Dec industrial production fell -3.1% m/m, weaker than expectations of -0.8% m/m and the biggest decline in 9 months.

ECB Governing Council member and Bundesbank President Nagel said ECB interest rates aren't yet in restrictive territory, and more "significant" rate hikes are needed.

USD/JPY (^USDJPY) on Tuesday fell by -1.09%.  The yen strengthened after Tuesday’s report on Japanese wages showed the largest increase in wages in 26 years, which could prompt the BOJ to exit its ultra-easy monetary policy.  Higher T-note yields Tuesday were bearish for the yen.

Tuesday’s Japanese economic news was mixed for the yen.  On the positive side, Dec labor cash earnings rose +4.8% y/y, stronger than expectations of +2.5% y/y and the biggest increase in 26 years.  Conversely, Dec household spending fell -1.3% y/y, weaker than expectations of -0.4% y/y and the biggest decline in 8 months.

April gold (GCJ3) on Tuesday closed up +5.30 (+0.28%), and March silver (SIH23) closed down -0.060 (-0.27%).  Precious metals Tuesday settled mixed, with silver falling to a 2-month low.  A weaker dollar Tuesday was supportive for metals prices.  Also, an increase in inflation expectations boosted demand for gold as an inflation hedge after the 10-year breakeven inflation rate Tuesday rose to a 1-week high.  Silver prices fell back on signs of weakness in industrial metals demand after German Dec industrial production fell more than expected by the most in 9 months.  Also, higher global bond yields Tuesday were bearish for metals. 

• Stocks Mixed as Markets Brace for Fed Chair Powell’s Comments
• Dollar Pushes Higher as Bond Yields Climb and Stocks Fall
• Stocks Lower on the Outlook for Hawkish Fed
• Dollar Soars as U.S. Economic Strength May Keep the Fed Hawkish