Dollar Weakens on Euro Strength

The dollar index (DXY00) on Monday fell -by 0.62%.  The dollar index Monday declined for the fourth consecutive session and posted a 2-week low.  A rally in the S&P 500 Monday to a 2-week high curbed liquidity demand for the dollar. Also, strength in the euro Monday weighed on the dollar after hawkish ECB comments pushed EUR/USD up to a 3-week high. 

EUR/USD (^EURUSD) on Monday rose by +0.73%.  The euro Monday rallied moderately and posted a 3-1/2 week high on hawkish comments from several ECB members.  Also, an easing of energy crisis concerns is bullish for EUR/USD, after European nat-gas prices fell more than -7% Monday to a 1-month low. The stronger-than-expected Italian July industrial production report was also bullish for the euro.

ECB Executive Board member Schnabel said the ECB's current assessment suggests that "over the Governing Council's next several meetings, we expect to raise interest rates further" to ensure the return of inflation to its 2% goal.

ECB Executive Board member Elderson said that more interest rate hikes by the ECB will come "as it's very important that the expectations that the people have on how inflation will develop in the medium to long term will not become de-anchored." 

ECB Governing Council member and Bundesbank President Nagel said the ECB would be required to continue raising interest rates if the current trend in consumer prices continues.

Italy’s July industrial production rose +0.4% m/m, stronger than expectations of no change.

USD/JPY (^USDJPY) on Monday rose by +0.24%.  The yen Monday fell moderately against the dollar on central bank divergence, with the Fed in the middle of raising interest rates while the BOJ maintains QE and record-low interest rates.  Also, higher T-note yields Monday weighed on the yen.

A bullish factor for the yen was Monday’s report from Nikkei that said Japan is making arrangements to end its daily limit on arrivals from overseas by October and will also consider removing other remaining barriers to foreign tourism put in place during the pandemic.

October gold (GCV22) Monday closed up +12.00 (+0.70%), and December silver (SIZ22) closed up +1.093 (+5.82%).  Gold and silver Monday moved moderately higher, with gold posting a 1-1/2 week high and silver rallying sharply to a 3-week high.  A slump in the dollar index Monday to a 2-week low is bullish for metals prices.  However, gains in gold are limited by continued long liquidation pressure after long gold positions in ETFs fell to a 7-month low last Friday.

An excessive short position by funds in silver may have sparked some short-covering in silver prices Monday after last Friday’s weekly Commitment of Traders (COT) data showed funds increased their net-short positions in silver futures by 3,573 in the week ended Sep 6 to a 3-year high of 24,632. 

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