The dollar index (DXY00) on Tuesday rose by +0.31% and posted a 2-month high. Hawkish comments Tuesday from Minneapolis Fed President Kashkari pushed the 10-year T-note yield up to a 2-1/4 month high and strengthened the dollar’s interest rate differentials. Also, weakness in stocks boosted the liquidity demand for the dollar. However, the ongoing U.S. debt ceiling impasse contained gains in the dollar.
Tuesday’s economic news was mixed for the dollar. On the positive side, Apr new home sales unexpectedly rose +4.1% m/m to a 13-month high of 683,000, stronger than expectations of a decline to 665,000. Conversely, the May S&P U.S. manufacturing PMI fell -1.7 to 48.5, weaker than expectations of 50.0. Also, the May Richmond Fed manufacturing survey unexpectedly fell -5 to -15, weaker than expectations of an increase to -8.
Tuesday’s comments from Minneapolis Fed President Kashkari were hawkish for Fed policy and bullish for the dollar when he said, "If inflation became more entrenched than we realized, then we're going to have to keep interest rates high for longer."
EUR/USD (^EURUSD) on Tuesday fell by -0.36% and matched last Friday’s 1-3/4 month low. The euro was under pressure Tuesday from dollar strength and economic concerns in the Eurozone. The Eurozone May S&P manufacturing PMI unexpectedly fell -1.2 to a 3-year low of 44.6, weaker than expectations of an increase to 46.0. Also, the May S&P composite PMI fell -0.8 to 53.3, weaker than expectations of 53.5.
USD/JPY (^USDJPY) on Tuesday fell by -0.03%. The yen on Tuesday recovered from a 5-1/2 month low against the dollar and rose slightly. The yen found support on Tuesday’s positive Japanese economic news. Also, a slide in T-note yield Tuesday gave the yen a boost.
Strong Japanese economic news Tuesday was bullish for the yen after the Japan May Jibun Bank manufacturing PMI rose +1.3 to 50.8, the strongest pace of expansion in 8 months. Also, the May Jibun Bank services PMI rose +0.9 to 56.3, the strongest pace of expansion since the data series began in 2019.
June gold (GCM3) on Tuesday closed down -2.70 (-0.14%), and July silver (SIN23) closed down -0.237 (-0.99%). Precious metals on Tuesday posted moderate losses, with silver falling to a 1-3/4 month low. Tuesday’s rally in the dollar index to a 2-month high is bearish for metals. Also, higher global bond yields Tuesday weighed on precious metals. In addition, hawkish comments from Minneapolis Fed President Kashkari undercut metals when he said interest rates would need to be higher for longer if inflation persists.
Silver prices were also under pressure Tuesday from industrial metals demand concerns after the U.S. May S&P manufacturing PMI fell more than expected and after the Eurozone May S&P manufacturing PMI unexpectedly contracted at the steepest pace in 3 years. However, losses in metals prices were limited as the ongoing U.S. debt-ceiling impasse has sparked safe-haven demand for precious metals.
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.
