The dollar index (DXY00) on Tuesday rose by +0.03%. The dollar Tuesday shook off early losses and posted modest gains. A jump in the 10-year T-note yield Tuesday to a 12-year high of 3.99% supported gains in the dollar. Also, weakness in stocks boosted the liquidity demand for the dollar. In addition, Tuesday’s better-than-expected U.S. economic news was bullish for the dollar. Finally, hawkish Fed comments Tuesday were bullish for the dollar.
U.S. economic news Tuesday was bullish for the dollar. Aug capital goods new orders nondefense ex-aircraft, a proxy for capital spending, rose +1.3% m/m, stronger than expectations of +0.2% m/m and the biggest increase in 7 months. Also, the Conference Board’s Sep U.S. consumer confidence index rose +4.4 to a 5-month high of 108.0, stronger than expectations of 104.6. In addition, Aug new home sales unexpectedly rose +28.8% m/m to a 5-month high of 685,000, stronger than expectations of a decline to 500,000.
Minneapolis Fed President Kashkari said we must not make the mistake of easing policy prematurely. "We need to keep tightening policy until we see some compelling evidence that core inflation is actually having peaked and is on its way down."
St. Louis Fed President Bullard said, "inflation is a serious problem, and we need to be sure we respond to it appropriately. We have increased the policy rate substantially this year, and more increases are indicated" in the Fed's latest forecasts.
Chicago Fed President Evans said Fed forecasts are not showing "recession-like numbers," and by spring 2023, we can sit and wait on interest rates.
EUR/USD (^EURUSD) on Tuesday fell by -0.14%. The euro Tuesday erased an early rally and fell for the sixth straight session but remained above Monday’s 20-year low. Dollar strength Tuesday weighed on EUR/USD, along with +7% jump in European nat-gas prices, which ramped up energy crisis concerns in the Eurozone. The euro Tuesday initially moved higher after hawkish comments from ECB Governing Council member Centeno pushed the 10-year German bund yield up to a 10-year high when he said the ECB would continue to raise interest rates until inflation is under control.Â
Eurozone Aug M3 money supply rose +6.1% y/y, stronger than expectations of +5.4% y/y.
ECB Governing Council member Centeno said, "for as long as we prolong the inflation peaks, we won't be able to give monetary policy the predictability that maybe we would wish, and the cycle of interest rate increases will continue."
USD/JPY (^USDJPY) on Tuesday rose by +0.06%. The yen Tuesday gave up an early advance and turned lower after the 10-year T-note climbed to a new 12-year high. The yen was also under pressure Tuesday after the BOJ ramped up QE when it unexpectedly announced an unscheduled purchase of 150 billion yen of 5-to-10-year bonds and 100 billion yen of 10-to-25-year bonds.Â
Japan Aug PPI services prices eased to +1.9% y/y, weaker than expectations of +2.1% y/y.
October gold (GCV22) Tuesday closed up +2.90 (+0.18%), and December silver (SIZ22) closed down -0.143 (-0.77%). Gold and silver Tuesday settled mixed, with silver falling to a new 2-week low. A slump in the S&P 500 to a 1-3/4 year low Tuesday sparked some safe-haven demand for precious metals. However, gains in gold were limited by higher global bond yields as the UK 10-year gilt yield rose to a 13-year high, the 10-year T-note yield rose to a 12-year high, and the German 10-year bund yield climbed to a 10-year high. Also, a rebound in the dollar Tuesday weighed on metals prices. In addition, fund liquidation of gold is bearish for gold prices as long positions in gold ETFs dropped to an 8-1/2 month low Monday.
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