Stimulus Check: The Eurozone’s Stimulus Plans Have a Negative Impact on the Dollar

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On Tuesday, the dollar index declined -0.24 percent. The dollar lost some ground on Tuesday, falling from a one-and-a-half-year high set on Monday. The dollar was under pressure on Tuesday as the EUR/USD rose in response to EU stimulus plans.

The dollar also sank due to stock market momentum and after U.S. economic data on Tuesday revealed that the country’s January trade imbalance had extended to a new high. The dollar’s losses were restrained by higher T-note yields.

The dollar fell on Monday after the United States’ January trade deficit grew to a record -$89.7 billion (data from 1992), exceeding predictions of -$87.3 billion.

On Tuesday, the EUR/USD (EURUSD) increased by 0.47 percent. After Bloomberg reported that the European Union is considering issuing debt for energy and military, short-covering sent the EUR/USD higher on Tuesday.

More powerful than anticipated German industrial production grew +2.7 percent m/m in January, beating estimates of +0.5 percent m/m and marking the highest gain in 15 months, according to Eurozone economic statistics released Tuesday.

_Stimulus Check & Stimulus Plans (3)
Stimulus Check: The Eurozone’s Stimulus Plans Have a Negative Impact on the Dollar

The Bank of America’s decision on Tuesday to decrease its Eurozone 2022 GDP prediction to 2.8 percent from 3.5 percent and boost its Eurozone 2022 inflation forecast to 6.0 percent from 4.4 percent, citing the consequences from the Ukraine conflict, was a bearish factor for EUR/USD.

On Tuesday, the USD/JPY (USDJPY) increased by 0.34 percent. The dollar strengthened modestly against the yen on Tuesday, as crude prices rose by 3%, which is unfavorable for the yen. In addition, rising T-note yields on Tuesday weakened the yen.

Better than anticipated Tuesday’s Japanese economic data restrained USD/JPY advances as the Japan February eco watchers outlook survey rose +1.9 to 44.4, beating estimates of 43.0. In addition, the CI for Japan’s January leading index declined -1.0 to 103.7, beating estimates of 103.6.

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On Tuesday, April gold (GCJ22) closed up +47.40 (+2.37%), while May silver (SIK22) closed at +1.175 (+4.57%). Gold and silver prices both hit new highs on Tuesday, with gold hitting a 19-month high and silver hitting an 8-1/2-month high.

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Metals were helped by a weaker dollar on Tuesday, as well as fears that the Ukraine conflict will lead to global stagflation. Gold is also gaining popularity as an inflation hedge after the 10-year breakeven inflation rate hit a new high on Tuesday.

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The dollar and gold have maintained their safe-haven status as a result of the negative impact of the omicron Covid variant’s global spread on global economic recovery. However, the pandemic in the United States has improved after the seven-day average of new Covid infections in the United States plummeted to a seven-and-a-half-month low of 42,125 on Monday.

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