The dollar index (DXY00) on Wednesday fell by -1.29%. The dollar Wednesday fell back from a 20-year high and posted sharp losses. A plunge in T-note yields Wednesday undercut the dollar after the 10-year T-note yield dropped -25.2 bp to 3.693%. Also, a rally in stocks Wednesday curbed the liquidity demand for the dollar.
The dollar Wednesday initially rallied to a 20-yer high in overnight trading on comments from White House Economic Council Director Deese, who said he doesn't expect another 1985 Plaza Accord type agreement among major economies to counter the dollar's strength.
U.S. economic news Wednesday was mixed for the dollar. On the positive side, the Aug advance goods trade balance deficit of -$87.3 billion was narrower than expectations of -$89.0 billion and the smallest deficit in 10 months, which was positive for U.S. GDP figures. Conversely, Aug pending home sales fell -2.0% m/m, weaker than expectations of -1.5% m/m.
Meanwhile, Aug wholesale inventories rose +1.3% m/m, more than expectations of +0.4% m/m. Aug retail inventories rose +1.4% m/m, more than expectations of +1.0% m/m. The buildup of inventories is a negative factor for the economy since it suggests that production will need to slow to match demand.
Hawkish comments Wednesday from Atlanta Fed President Bostic were supportive of the dollar when he said, "the lack of progress on inflation thus far has me thinking much more now that we have to get to a moderately restrictive stance. My preference is that we get the fed funds target range to 4.25% to 4.50% by year-end."
EUR/USD (^EURUSD) on Wednesday rose by +1.44%. The euro Wednesday recovered from a new 20-year low and rallied sharply. Dollar weakness Wednesday sparked short covering in EUR/USD. Also, hawkish comments Wednesday from ECB policymakers show support for a 75 bp rate hike at next month’s ECB meeting, which is bullish for EUR/USD. EUR/USD Wednesday initially fell to a 20-year low after the German Oct GfK consumer confidence index fell to a record low of -42.5.
ECB President Lagarde said we're not at the neutral rate yet, and we'll continue hiking rates at the next several ECB meetings.
ECB Governing Council member Kazimir said, "inflation is too high for too long, and we will need to continue in normalization of monetary policy." While ECB officials are data dependent, a 75 bp hike "is a good candidate to continue and keep tightening."
ECB Governing Council member Kazaks said because the ECB is still far away from interest rates that are consistent with 2% inflation, "I would side with a 75 bp rate hike in October."
The German Oct GfK consumer confidence index fell -5.7 to a record low of -42.5, weaker than expectations of -39.0.
USD/JPY (^USDJPY) on Wednesday fell by -0.45%. The yen Wednesday moved moderately higher after T-note yields plunged. Gains in the yen were limited after the minutes of the July BOJ meeting released Wednesday stated that BOJ members said they wouldn’t hesitate to add to easing if necessary. Also, weak Japanese economic news was bearish for the yen after the Japan July leading index CI was revised downward by -0.7 to a 20-month low of 98.9.
October gold (GCV22) Wednesday closed up +33.80 (+2.08%), and December silver (SIZ22) closed up +0.543 (+2.96%). Gold and silver Wednesday recovered from overnight losses and rallied sharply. A retreat in the dollar Wednesday sparked short covering in metals. Also, a plunge in global bond yields Wednesday boosted gold prices after the BOE ramped up QE. A bearish factor for gold is continued fund liquidation of gold as long positions in gold ETF’s dropped to a 2-1/4 year low Tuesday.
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