The dollar index (DXY00) on Tuesday rose by +0.12%. The dollar recovered from early losses on Tuesday and posted modest gains as weakness in stocks boosted liquidity demand for the dollar. The dollar also garnered some support Tuesday after S&P Global Ratings affirmed its AA+ long-term rating and A-1+ short-term rating on US debt and said the US can maintain its credit strength despite the fiscal hit of its recent spending bill because tariff revenues will “generally offset weaker fiscal outcomes.”
Lower T-note yields on Tuesday were bearish for the dollar. Also, signs of progress in peace talks over Ukraine are curbing safe-haven demand for the dollar. Losses in the dollar are limited due to concern that last week’s stronger-than-expected July CPI and PPI reports could keep the Fed from cutting interest rates at next month’s FOMC meeting.
Tuesday’s US housing news was mixed for the dollar. US Jul housing starts unexpectedly rose +5.2% m/m to a 5-month high of 1.428 million, stronger than expectations of a decline to 1.297 million. However, Jul building permits, a proxy for future construction, fell -2.8% m/m to a 5-year low of 1.354 million, weaker than expectations of -0.5% m/m to 1.386 million.
Ukrainian President Zelenskiy said late Monday that he came away with a commitment from President Trump to join security guarantees for any peace deal and reserve discussion on territorial swaps with Russia for later. President Trump is pushing for a summit between Presidents Putin and Zelenskiy in the near future, and European leaders are discussing a plan to send British and French troops to Ukraine as part of a peace agreement. The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
The markets continue to adjust to the inflation outlook following last Thursday’s hawkish PPI report. Following the report, the markets erased any hopes of a -50 bp rate cut at the Fed’s September meeting and pulled back…
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