Dollar Slightly Higher on Strong U.S. Economic News

The dollar index (DXY00) on Thursday rose by +0.11%.   The dollar Thursday finished slightly higher.  Strength in T-note yields Thursday supported the dollar along with better-than-expected U.S. economic news on weekly jobless claims, Aug retail sales, and Aug manufacturing production.  Also, weakness in stocks Thursday boosted liquidity demand for the dollar.

Thursday, U.S. economic reports were mostly hawkish for Fed policy and supportive of the dollar.  U.S. weekly initial unemployment claims unexpectedly fell -5,000 to a 3-1/2 month low of 213,000, showing a stronger labor market than expectations of an increase to 227,000.  Also, Aug retail sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.1% m/m decline.  In addition, Aug manufacturing production unexpectedly rose +0.1% m/m, stronger than expectations of a -0.1% m/m decline.  Finally, the Sep Empire manufacturing survey general business conditions rose +29.8 to -1.5, stronger than expectations of -12.9.  On the negative side, Aug retail sales ex-autos unexpectedly fell -0.3% m/m, weaker than expectations of no change.  Also, the Sep Philadelphia Fed business outlook survey fell -16.1 to -9.9, weaker than expectations of 2.3.

EUR/USD (^EURUSD) on Thursday rose by +0.12%.   The euro Thursday garnered support from hawkish comments from ECB Vice President Guindos and ECB Governing Council member Makhlouf who both called for additional ECB rate hikes.  Economic concerns in the Eurozone limited the upside in the euro Thursday  after ECB Vice President Guindos said today that "we expect output growth to slow down substantially" in the Eurozone. 

Eurozone Q2 labor costs eased to +4.0% y/y from +4.2% y/y in Q1.

The German Aug wholesale price index eased to 18.9% y/y from 19.5% y/y in July.

ECB Vice President Guindos said "the Eurozone is now facing a challenging outlook" and "we expect output growth to slow down substantially."  Also, " at the current low level of interest rates, monetary policy is still accommodative, thus supporting demand and ultimately contributing to price pressures." 

ECB Governing Council member Makhlouf said, "raising interest rates is absolutely necessary as persistent inflation is damaging to macroeconomic stability."

USD/JPY (^USDJPY) on Thursday rose by +0.32%.  The yen Thursday fell moderately as higher T-note yields weighed on the yen.  However, losses in the yen appear limited in the near term on signs the BOJ may soon intervene in the currency market to support the yen.  The BOJ on Wednesday conducted a rate check in currency markets, a possible precursor for currency intervention. 

Thursday’s Japanese economic news supported the yen after Japan Aug exports rose +22.1% y/y, the biggest increase in a year but weaker than expectations of +24.1% y/y. 

October gold (GCV22) Thursday closed down -31.40 (-1.85%), and December silver (SIZ22) closed down -0.300 (-1.53%).  Gold and silver Thursday fell moderately, with gold sinking to a 2-1/4 year low.  A stronger dollar Thursday weighed on metals prices.  Also, stronger-than-expected U.S. economic news Thursday that was hawkish for Fed policy undercut metals prices.  Gold prices were also under pressure Thursday from higher global bond yields.  Losses in gold accelerated Thursday on technical selling when prices fell below $1,700 an ounce.  Gold prices are still weighed down by long liquidation pressures after long gold positions in ETFs fell to a 7-1/2 month low Wednesday. 

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