The dollar index (DXY00) on Tuesday rose by +0.29% and posted a 1-week high. The dollar moved higher on Tuesday on the stronger-than-expected US Mar retail sales and Mar pending home sales reports. The dollar gained further on Tuesday after stock prices slumped when Vice President Vance’s trip to Pakistan to meet Iranian negotiators was put on hold after Iran failed to respond to US negotiating positions.
The dollar also has support on signs that Fed Chair nominee Kevin Warsh will support an independent Fed and prioritize low inflation. Fed Chair nominee Warsh’s prepared statement before the Senate Banking Committee said he is committed to ensuring that the conduct of monetary policy remains “strictly independent” and to keeping inflation in check, stating that price stability is a mandate for the Fed “without excuse or equivocation.”
US Mar retail sales rose +1.7% m/m, stronger than expectations of +1.4% m/m and the biggest increase in a year. Also, Mar retail sales ex-autos rose +1.9% m/m, stronger than expectations of +1.4% m/m and the biggest increase in 3 years.
US Mar pending home sales rose +1.5%, stronger than expectations of +0.5% m/m.
Swaps markets are discounting the odds at 1% for a +25 bp rate hike at the April 28-29 FOMC meeting.
The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) on Tuesday fell by -0.37% and posted a 1-week low. Tuesday’s German April ZEW survey, which showed German investor optimism fell more than expected to a 3.5-year low, weighed on the euro. Also, dollar strength on Tuesday was bearish for the euro. Losses in the euro accelerated on Tuesday after crude oil prices recovered from early losses and rallied more than +2%, which is negative for the Eurozone economy and the euro, as Europe imports most of its energy.
The German Apr ZEW survey expectations of economic growth fell -16.7 to a 3.25-year low of -17.2, weaker than expectations of -5.8.
Swaps are discounting a 13% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
