Dollar Surges on New 10-year High in T-note Yield

The dollar index (DXY00) on Friday rose sharply by +1.56%.  The dollar Friday surged to a new 20-year high.  The dollar climbed on carry-over support from Wednesday when the Fed signaled it would maintain its aggressive rate hike stance. Also, a jump Friday in the 10-year T-note yield to a 12-year high strengthened the dollar’s interest rate differentials.

In addition, GBP/USD plummeted to a 37-year low Friday after UK Chancellor of the Exchequer Kwarteng outlined a plan for expansive tax cuts and spending that sparked concerns about inflation and the UK’s ballooning debt.  Finally, Friday’s slump in stocks boosted the liquidity demand for the dollar. 

U.S. economic news Friday was bullish for the dollar.  The Sep S&P Global Manufacturing PMI unexpectedly rose +0.3 to 51.8, stronger than expectations of a decline to 51.0.

EUR/USD (^EURUSD) on Friday sank by -1.55% and posted a new 20-year low.  Dollar strength Friday weighed on EUR/USD along with weaker-than-expected economic news after the Eurozone Sep S&P Global Manufacturing PMI fell -1.1 to 48.5, the weakest level in 2-1/4 years.  Also, concerns about a prolonged war in Ukraine weighed on EUR/USD after Russian President Putin said Russia would boost its defense spending by +43% next year. Losses in the euro accelerated on technical selling after EUR/USD fell below the .9800 level.

ECB Governing Council member Kazaks said interest rates in the Eurozone would "definitely" have to be raised, and he favors a 75 bp rate hike at the ECB's October meeting.

The Eurozone Sep S&P Global Manufacturing PMI fell -1.1 to 48.5, weaker than expectations of 48.8 and weakest level in 2-1/4 years.  Also, the Eurozone Sep S&P Global Composite PMI fell -0.7 to 48.2, right on expectations and the weakest level in 20 months.

USD/JPY (^USDJPY) on Friday rose by +0.65%.  The yen was under pressure Friday from higher T-note yields after the 10-year T-note climbed to a 12-year high.  Trading volume in the yen was subdued since the markets in Japan were closed Friday for the Autumnal Equinox Day holiday.

October gold (GCV22) Friday closed down -26.10 (-1.56%), and December silver (SIZ22) closed down -0.707 (-3.60%).  Gold and silver Friday sold off sharply, with gold falling to a 2-year low and silver posting a 2-week low.  Dollar strength continues to pressure metals prices as the dollar index Friday rallied to a new 20-year high.  Also, soaring global bond yields are bearish for gold, with the 10-year T-note yield Friday climbing to a 12-year high and the UK 10-year gilt yield rising to an 11-year high.  In addition, fund liquidation of gold is bearish for prices as long positions in gold ETFs dropped to an 8-month low Thursday.

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