The dollar index (DXY00) Monday rose by +0.33% and posted a 5-week high. Higher T-note yields Monday strengthened the dollar’s interest rate differentials and supported the dollar. Also, concerns about China’s worsening debt crisis knocked the yuan down to a 6-week low against the dollar Monday. In addition, central bank divergence hammed the yen, which fell to a 9-month low against the dollar Monday.
Monday’s monthly survey of consumer inflation expectations from the New York Fed was dovish for Fed policy and negative for the dollar. The survey showed inflation expectations for one-year fell to 3.55% in July from 3.83% in June, the lowest in two years. Also, three-year inflation expectations fell to 2.9% in July from 3.0% in June.
