The dollar index (DXY00) on Tuesday rose by +0.01%. The dollar Tuesday gave up an early advance and was little changed. Signs of strength in the U.S. economy boosted T-note yields and the dollar on Tuesday’s stronger-than-expected U.S. retail sales and manufacturing production reports. Also, the weakness in stocks on Tuesday boosted the liquidity demand for the dollar. However, the dollar gave up its gains on dovish comments from Richmond Fed President Barkin, who signaled his support for a pause in Fed rate hikes.
Tuesday’s U.S. economic news was mostly better than expected and supported the dollar. Sep retail sales rose +0.7% m/m and +0.6% m/m ex-autos, stronger than expectations of +0.3% m/m and +0.2% m/m ex-autos. Also, Sep manufacturing production rose +0.4% m/m, stronger than expectations of unchanged m/m. On the negative side, the Oct NAHB housing market index fell -4 to a 9-month low of 40, weaker than expectations of 44.
Dovish comments Tuesday from Richmond Fed President Barkin were bearish for the dollar when he said, "I am still looking to be convinced, both that demand is settling and that any weakness is feeding through to inflation." He added that the path for inflation "isn't yet clear," and "we have time to see if we have done enough, or whether there's more work to do."
EUR/USD (^EURUSD) on Tuesday rose by +0.18%. The euro on Tuesday recovered from early losses and moved higher after the dollar gave up its advance on dovish Fed comments. EUR/USD also garnered support on Tuesday’s news that showed the German Oct ZEW survey expectations of economic growth rose more than expected to a 6-month high. In addition, hawkish comments from ECB Chief Economist Lane were supportive of the euro when he said ECB policy is far from being loosened.
The German Oct ZEW survey expectations of economic growth rose +10.3 to a 6-month high of -1.1, stronger than expectations of -9.0.
ECB Chief Economist Lane said monetary policy can only be loosened when ECB officials are "sufficiently confident" of reaching their 2% inflation target, "but this is quite some distance away from where we are now."
USD/JPY (^USDJPY) on Tuesday rose by +0.15%. The yen on Tuesday gave up an overnight advance and posted moderate losses. A jump in T-note yields Tuesday undercut the yen along with weak Japanese economic news after the Aug tertiary industry index unexpectedly fell. The yen initially moved higher in overnight trade on a Bloomberg report that said the BOJ will likely discuss raising its inflation projection for fiscal 2023 and 2024 at its policy meeting later this month.
The Japan Aug tertiary industry index unexpectedly fell -0.1% m/m, weaker than expectations of a +0.3% m/m increase.
December gold (GCZ3) on Tuesday closed +1.40 (+0.07%), and Dec silver (SIZ23) closed +0.259 (+1.14%). Precious metals prices on Tuesday posted moderate gains on increased safe-haven demand regarding the Israeli-Hamas war after Israeli defense minister Gallant said to expect a “long war” against Hamas. Also, an increase in inflation expectations boosted demand for gold as an inflation hedge after the 10-year U.S. breakeven inflation rate today rose to a 2-1/4 month high. Silver also found support Tuesday on the stronger-than-expected U.S. retail sales and manufacturing production reports, which were bullish for industrial metals demand.
Gains in precious metals were limited Tuesday by higher global bond yields. Also, hawkish comments from ECB Chief Economist Lane weighed on precious metals when he said ECB policy is far from being loosened.
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.
