The dollar index (DXY00) on Monday rose by +0.69% and posted a 10-month high. Rising T-note yields supported the dollar after the 10-year T-note yield Monday climbed to a 16-year high of 4.701%. Also, weakness in the yen is supportive of the dollar after the BOJ announced additional bond purchases, which knocked the yen down to an 11-1/4 month low against the dollar. The dollar extended its gains on hawkish comments from Fed Governor Bowman and after the U.S. Sep ISM manufacturing index rose more than expected, a hawkish factor for Fed policy.
Monday’s U.S. economic news was mostly better than expected and bullish for the dollar. The Sep ISM manufacturing index rose +1.4 to 49.0, stronger than expectations of 47.9. Also, Aug construction spending rose +0.5% m/m, right on expectations.
Hawkish comments on Monday from Fed Governor Bowman were bullish for the dollar when she said, "I continue to expect that further interest rate increases will likely be needed to return inflation to 2% in a timely way as high energy prices could reverse some of the progress we have seen on inflation in recent months."
EUR/USD (^EURUSD) on Monday fell by -0.79% and matched last Thursday’s 8-3/4 month low. The euro was under pressure Monday after the 10-year T-note yield climbed to a 16-year high, which strengthened the dollar’s interest rate differentials versus the euro.
Monday’s comments from ECB Vice President Guindos supported the euro when he said interest rates at their current levels will help bring down inflation to the ECB's 2% target and that talk of rate cuts by the ECB is premature.
Monday’s Eurozone economic news was bullish for the euro after the Eurozone Aug unemployment rate fell -0.1 to match the record low of 6.4%, right on expectations.
USD/JPY (^USDJPY) on Monday rose by +0.27%. The yen on Monday tumbled to an 11-1/4 month low against the dollar. Higher T-note yields on Monday were bearish for the yen. Also, Monday’s action by the BOJ to announce an extra bond-buying plan of 5 to 10-year bonds for this week undercut the yen. Losses in the yen were contained after the Japan Q3 Tankan large manufacturing business conditions rose more than expected, and after the 10-year JGB bond yield rose to a 10-year high of 0.783%, strengthening the yen’s interest rate differentials.
Monday’s Japanese economic news was mixed for the yen. On the negative side, the Japan Sep Jibun Bank manufacturing PMI was revised downward by -0.1 to 48.5 from the initially reported 48.6, the steepest pace of contraction in 7 months. Conversely, the Japan Q3 Tankan large manufacturing business conditions rose +4 to 9, stronger than expectations of 6.
December gold (GCZ3) on Monday closed -18.90 (-1.01%), and Dec silver (SIZ23) closed -1.037 (-4.64%). Precious metals prices on Monday sold off sharply, with gold sinking to a 6-3/4 month low and silver dropping to a 6-1/2 month low. Monday’s jump in the dollar index to a 10-month high undercut metals prices. Also, higher global bond yields on Monday were bearish for precious metals. In addition, hawkish central bank comments were bearish for precious metals after Fed Governor Bowman said, "I continue to expect that further interest rate increases will likely be needed to return inflation to 2%,” and after ECB Vice President Guindos said any talks of rate cuts by the ECB are premature. Finally, long liquidation pressures are weighing on gold after long gold holdings in ETFs fell to a 3-1/2 year low last Friday.
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.
