Dollar Climbs on Weak Stocks and Surging T-note Yields

The dollar index (DXY00) on Monday rose by +0.77%.  The dollar Monday climbed for the fifth consecutive session and posted a new 20-year high.  Soaring T-note yields Monday pushed the dollar higher after the 10-year T-note yield rose to a 12-year high of 3.902%.  Also, slumping equity markets boosted the liquidity demand for the dollar. Finally, Monday’s plunge in GBP/USD to a record low and the fall in EUR/USD to a 12-year low supported the dollar. 

Comments Monday from Boston Fed President Collins were hawkish for Fed policy and bullish for the dollar when she said, "returning inflation to target will require further tightening of monetary policy, as signaled in the recent FOMC projections."

U.S. economic news Monday was bearish for the dollar.  The Aug Chicago Fed national activity index fell -0.29 to 0.0, weaker than expectations of a decline to 0.23.  Also, the Sep Dallas Fed manufacturing outlook level of general business activity unexpectedly fell -4.3 to -17.2, weaker than expectations of an increase to -9.0.

EUR/USD (^EURUSD) on Monday fell by -0.72%.  The euro Monday fell for the fifth straight session and posted a fresh 20-year low.  Dollar strength Monday weighed on EUR/USD, along with the decline in German business confidence to a 2-1/4 year low.  Also, political risks in Italy are bearish for the euro after right-wing candidate Meloni won a majority in Sunday's election.   There are fears that Meloni will reverse the market reforms put into place by outgoing Italian prime minister Draghi.  EUR/USD recovered from its worst levels on hawkish ECB comments.

ECB Vice President Guindos said the Eurozone economy will slow significantly in the third and fourth quarters this year, and "reducing inflation is the main contribution we can have to improve the economic situation."

ECB Governing Council member Simkus said "inflation trends are intensifying," and the ECB will raise interest rates by at least +50 bp at the October meeting.

The German Sep IFO business climate index fell -4.3 to a 2-1/4 year low of 84.3, weaker than expectations of 87.0.

USD/JPY (^USDJPY) on Monday rose by +0.89%.  The yen Monday was under pressure Friday from higher T-note yields after the 10-year T-note climbed to a new 12-year high.  Also, weak Japanese economic news Monday and dovish comments from BOJ Governor Kuroda weighed on the yen.

BOJ Governor Kuroda said uncertainties surrounding the Japanese economy are very high, and he believes BOJ monetary easing will continue in 2023 and 2024.

The Japan Sep Jibun Bank manufacturing PMI fell -0.5 to 51.0, the slowest pace of expansion in 20 months.

October gold (GCV22) Monday closed down -21.70 (-1.32%), and December silver (SIZ22) closed down -0.430 (-2.27%).  Gold and silver Monday extended last Friday’s sharp losses, with gold sliding to a 2-1/4 year low and silver falling to a 2-week low.  Dollar strength continues to pressure metals prices as the dollar index Monday rose to a new 20-year high.  Also, soaring global bond yields are bearish for gold, with the 10-year T-note yield and UK 10-year gilt yield rising to 12-year highs and the German 10-year bund yield climbing to a 10-year high.  In addition, fund liquidation of gold is bearish for prices as long positions in gold ETFs dropped to an 8-month low last Friday.

• Stocks Fall As T-Note Yield Continues Higher
• Dollar Surges on New 10-year High in T-note Yield
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