The dollar index (DXY00) on Tuesday rose by +0.20% and climbed to a 9-3/4 month high. Hawkish comments from Minneapolis Fed President Kashkari Tuesday supported the dollar when he said he expects the Fed to raise interest rates again this year. Also, weakness in the euro was bullish for the dollar after dovish ECB comments knocked EUR/USD down to a 6-1/2 month low. In addition, higher T-note yields and a slump in stocks were positive for the dollar. However, gains in the dollar were limited by weaker-than-expected U.S. new home sales and consumer confidence reports.
Tuesday’s U.S. economic news was mixed for the dollar. On the positive side, the Jul S&P CoreLogic composite-20 home price index unexpectedly rose +0.13% y/y, the first year-on-year increase in 5 months and stronger than expectations of a -0.10% y/y decline. Also, the Sep Richmond Fed manufacturing survey rose +12 to a 17-month high of 5, stronger than expectations of no change at -7.
On the bearish side for the dollar, Aug new home sales fell -8.7% m/m to a 5-month low of 675,000, weaker than expectations of 698,000. Also, the Conference Board’s Sep U.S. consumer confidence index fell -5.7 to a 4-month low of 103.0, weaker than expectations of 105.5.
Hawkish comments Tuesday from Minneapolis Fed President Kashkari were bullish for the dollar when he said, "If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held higher for longer to cool things off."
EUR/USD (^EURUSD) on Tuesday fell by -0.23% and fell to a 6-1/2 month low. Tuesday’s dovish comments from ECB Governing Council member Muller weighed on the euro when he said he's not currently expecting further increases in interest rates from the ECB. Strength in the dollar Tuesday also undercut the euro. Tuesday’s jump in the 10-year German bund yield to a 12-year high limited losses in the euro.
USD/JPY (^USDJPY) on Tuesday rose by +0.12%. The yen on Tuesday gave up early gains and fell to an 11-month low against the dollar. Higher T-note yields Tuesday undercut the yen along with central bank divergence, with the BOE, ECB, and Federal Reserve all raising interest rates while the BOJ maintains record low interest rates. The yen Tuesday initially moved higher on jawboning from Japanese government officials when Japanese Finance Minister Suzuki said, “I’m watching market trends with a high sense of urgency.” Also, Tuesday’s -1% fall in the Nikkei Stock Index boosted some safe-haven demand for the yen.
Japan Aug PPI services prices rose +2.1% y/y, stronger than expectations of +1.8% y/y and the biggest increase in 11 months.
October gold (GCV3) on Tuesday closed -16.60 (-0.87%), and Dec silver (SIZ23) closed -0.189 (-0.81%). Precious metals prices Tuesday retreated for a second day, with gold falling to a 1-month low. Tuesday’s rally in the in the dollar index to a 9-3/4 month high was bearish for metals prices. Also, higher global bond yields weighed on metals prices. In addition, hawkish comments Tuesday from Minneapolis Fed President Kashkari undercut precious metals when he said he expects the Fed to raise interest rates one more time this year. Gold prices are also weighed down by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Monday.
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.
