The dollar index (DXY00) Tuesday rose +0.54% and posted a 5-1/2 month high. Weakness in stocks Tuesday boosted liquidity demand for the dollar. Also, higher T-note yields Tuesday strengthened the dollar’s interest rate differentials. In addition, weaker-than-expected economic news Tuesday from China and the Eurozone have boosted the relative optimism in the U.S. economy and the dollar.
U.S. economic news Tuesday supported the dollar after July factory orders fell -2.1% m/m, the biggest decline in 8 months but stronger than expectations of a -2.5% m/m drop.
Comments Tuesday from Fed Governor Waller were dovish for Fed policy and bearish for the dollar when he signaled that he supports a pause in Fed rate hikes when he said, "There is nothing that is saying we need to do anything imminent anytime soon and we can just sit there and wait for the data."
EUR/USD (^EURUSD) Tuesday fell -0.70%. Dollar strength Tuesday sparked technical selling in the euro with the new 2-3/4 month low. Also, weaker-than-expected Eurozone economic news Tuesday was dovish for ECB policy and bearish for the euro. The euro recovered from its worst levels after the ECB’s monthly survey showed longer-term consumer price expectations increased, which was hawkish for ECB policy.
The Eurozone Aug S&P composite PMI was revised downward by -0.3 to 46.7 from the previously reported 47.0, the steepest pace of contraction in 2-3/4 years.
Eurozone July PPI eased to -7.6% y/y from -3.4% y/y in June, right on expectations and the sharpest decline in 14 years.
The ECB reported July 1-year CPI consumer expectations were unchanged at 3.4% from June, but the July 3-year CPI consumer expectations unexpectedly rose to 2.4% from 2.3% in June.
USD/JPY (^USDJPY) Tuesday rose +0.88%. The yen Tuesday sold off to a 10-month low against the dollar. Rising T-note yields undercut the yen Tuesday, along with central bank divergence, as the Fed, BOE, and ECB are all raising interest rates while the BOJ maintains record-low interest rates. Tuesday’s Japanese economic news also pressured the yen after Japan household spending fell more than expected.
Japan Jul household spending fell -5.0% y/y, weaker than expectations of -2.5% y/y and the biggest decline in almost 2-1/2 years.
October gold (GCV3) Tuesday closed -14.10 (-0.72%), and December silver (SIZ23) closed -0.689 (-2.81%). Precious metals prices Tuesday posted moderate losses, with silver falling to a 1-1/2 week low. Tuesday's rally in the dollar index to a 5-1/2 month high was bearish for metals. Also, rising global bond yields Tuesday were negative for precious metals prices. Losses in metals were limited as a slump in stocks Tuesday boosted safe-haven demand for precious metals. Also, Tuesday’s comments from Fed Governor Waller were bullish for precious metals when he signaled that he supports a pause in Fed rate hikes.
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.
