The dollar index (DXY00) on Monday fell -0.04%. The dollar Monday gave up an early advance and fell slightly after stocks recovered from overnight losses and moved higher, which curbed liquidity demand for the dollar. The dollar Monday initially rose moderately after the 10-year T-note yield climbed to an 11-year high, which strengthened the dollar’s interest rate differentials.
Monday’s U.S. economic news was bearish for the dollar after the Sep NAHB housing market index fell -3 to a 2-1/4 year low of 46, weaker than expectations of 47.
EUR/USD (^EURUSD) on Monday rose by +0.09%. The euro Monday recovered from early losses and moved higher as energy crisis concerns eased when European nat-gas prices fell to a 1-3/4 month. Also, hawkish comments from ECB Vice President Guindos and Bundesbank President Nagel supported EUR/USD when they both expressed support for additional ECB rate hikes. The euro Monday initially moved lower on economic concerns after the Bundesbank said that “there are increasing signs of a recession of the German economy.”
ECB Vice President Guindos said, "the economic slowdown in the Eurozone will not reduce inflation by itself. Monetary policy needs to contribute to ease inflation."
ECB Governing Council member and Bundesbank President Nagel said, "we are far away from interest rates that are at a level that is appropriate given the state of inflation. We're still a good way off" from the neutral rate.
In its monthly report Monday, the Bundesbank said, "there are increasing signs of a recession of the German economy in the sense of a clear, broad-based and longer-lasting decline in economic output." The Bundesbank also said it sees a "noticeable" contraction in the winter months and that headline inflation could even enter a double-digit range.
Eurozone July construction output rose +0.3% m/m, the first increase in 5 months.
USD/JPY (^USDJPY) on Monday rose by +0.29%. Higher T-note yields Monday weighed on the yen after the 10-year T-note yield climbed to an 11-year high. However, losses in the yen were limited by some short covering ahead of Thursday’s BOJ meeting results. Trading activity in the yen was subdued Monday, with Japan closed for a holiday.
October gold (GCV22) Monday closed down -5.20 (-0.31%), and December silver (SIZ22) closed down -0.023 (-0.12%). Gold and silver Monday posted losses. Expectations for global central banks to raise interest rates this week weighed on metals prices. The Fed is expected to raise interest rates by +75 bp on Wednesday, and the BOE is expected to raise interest rates by +50 bp on Thursday. Gold is also under pressure after the 10-year T-note yield Monday rose to an 11-year high. Fund liquidation of gold is another bearish factor for prices as long positions in gold ETF’s dropped to a 7-3/4 month low last Friday.
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