The dollar index (DXY00) on Tuesday rose by +0.55%.  The dollar received support as the 10-year T-note rose +5 bp and the 30-year T-bond yield rose back above 5% for the first time in 1.5 months. The rise in Treasury yields supported the dollar's interest rate differentials.

Tuesday’s US CPI report generated some favorable initial media coverage as the June core CPI report of +0.2% m/m was slightly below expectations of +0.3%.  However, there were some scattered signs of upside pressure from tariffs, and that pressure is expected to increase in the coming months.  Also, both the headline and core CPI reports on a year-over-year basis rose from May.

Specifically, the June US CPI rose +0.3% m/m, which was in line with market expectations, while the year-over-year figure of +2.7% was slightly worse than expectations of +2.6% and was up from May's +2.4%.  The June US core CPI rose +0.2% m/m, which was slightly better than expectations of +0.3%.  On a year-over-year basis, the June US core CPI was in line with expectations at +2.9% y/y but rose from May's +2.8%.

The CPI report did not change expectations for a Fed rate cut at its July meeting but led to reduced expectations for a Fed rate cut at its September meeting of 57% versus 65% before the CPI report.  Federal funds futures prices are currently discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and at 57% at the following meeting on Sep 16-17.

There was some positive trade news Tuesday after Treasury Secretary Bessent said that US-China trade talks are in a "very good place," which reduced safe-haven demand for the dollar.  He also said the US-China deadline is flexible and told market participants "not to worry about August 12." Mr. Bessent confirmed that the Trump administration has told Nvidia that a license for the sale of its advanced H20 GPU chips to Chinese firms will be granted and is "all part of a mosaic" in the US-China negotiations.  He also said he hopes to meet with Chinese Vice Premier He Lifeng in August.

There was also some positive trade news after President Trump said his administration reached a trade deal with Indonesia.  However, US imports from Indonesia totaling around $2.8 billion will face a US tariff of 19%, which is likely to raise the price that US consumers pay for Indonesian goods. 

EUR/USD (^EURUSD) fell -0.60% due to strength in the dollar. The euro was also undercut by Tuesday’s -1.7 bp decline in the 10-year bund yield, which reduced the euro's interest rate differentials versus the 10-year T-note yield, which rose +5.0 bp.

The euro saw underlying support from news that the July German ZEW expectations index rose +5.2 points to 52.7 from 47.5 in June, which was stronger than expectations for an increase to 50.4.

The euro also saw underlying support as the May Eurozone industrial production report of +1.7% m/m and +3.7% y/y was stronger than market expectations of +1.0% m/m and +2.2% y/y.

Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.

USD/JPY (^USDJPY) rose +0.78% on dollar strength.  Additionally, the yen remains under pressure due to concerns about the upcoming upper house election in Japan on July 20.  The promises by Japan's ruling Liberal Democratic Party of cash handouts to voters and promises of lower taxes by the opposition have sparked concerns of fiscal deterioration, which are bearish for the yen.

August gold (GCQ25) on Tuesday closed down -22.40 (-0.67%), and September silver (SIU25) closed down -0.632 (-1.63%).  Precious metals fell on the +0.5% rise in the dollar index and the +5 bp rise in the 10-year T-note yield.  Sep silver saw some long liquidation after falling back from Monday's contract high.  July 2025 silver fell back from Monday's 14-year high on the nearest-futures chart.

Precious metals prices also fell back on some favorable trade news as Treasury Secretary Bessent claimed that US-Chinese trade talks were in a "very good place" and as President Trump announced a trade deal with Indonesia.