The dollar index (DXY00) on Monday rose by +0.40% and posted a new 6-1/2 month high. The dollar moved higher Monday on rising bond yields, with the 10-year T-note climbing to a 16-year high. Also, the dollar has carryover support from last Wednesday when the Fed signaled one more +25 bp rate hike this year and projected the fed funds rate next year +50 bp higher than they projected back in June.
Weaker-than-expected U.S. economic news Monday was bearish for the dollar. The Aug Chicago Fed national activity index fell -0.23 -0.16, weaker than expectations of 0.10. Also, the Aug Dallas Fed manufacturing outlook level of general business activity unexpectedly fell -0.9 to -18.1, weaker than expectations of an increase to -14.0.
EUR/USD (^EURUSD) on Monday fell by -0.63% and posted a 6-1/2 month low. Dollar strength Monday weighed on the euro along with dovish ECB comments. ECB Governing Council member Kazaks said the ECB's 25 bp rate hike this month may allow for a pause at its October meeting. Losses in EUR/USD were limited after the Sep German IFO business climate fell less than expected and on hawkish comments from ECB President Lagarde.
ECB President Lagarde said, "Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary."
ECB Governing Council member Kazaks said the ECB's "very appropriate" 25 bp interest rate hike in September may allow for a pause in October.
The Sep German IFO business climate fell by -0.1 to 85.7, stronger than expectations of 85.2.
USD/JPY (^USDJPY) on Monday rose by +0.28%. The yen on Monday dropped to a 10-3/4 month low against the dollar. The yen was under pressure Monday from higher T-note yields. Also, dovish comments Monday from BOJ Governor Ueda undercut the yen when he said the BOJ needs to continue with monetary easing as uncertainties around wage gains and inflation are high, and therefore, the goal of achieving 2% inflation accompanied by wage gains hasn’t yet “come in sight.”
October gold (GCV3) on Monday closed -9.00 (-0.47%), and Dec silver (SIZ23) closed -0.359 (-1.93%). Precious metals prices Monday posted moderate losses. Monday’s rally in the dollar index to a 6-1/2 month high undercut metals prices. Also, soaring global government bond yields are bearish for precious metals after the 10-year German bund yield on Monday rose to a 12-year high, and the 10-year T-note yield rose to a 16-year high. In addition, hawkish comments from ECB President Lagarde weighed on metals when she said, "Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
