The dollar index (DXY00) on Friday fell by -0.11%. The dollar index Friday gave up an early advance and posted modest losses. Mixed U.S. economic news Friday weighed on the dollar after the University of Michigan’s Sep U.S. consumer sentiment index was revised downward and the Sep MNI Chicago PMI fell to a 2-1/4 year low, while Aug personal spending rose more than expected. However, dollar weakness Friday was contained by higher T-note yields and weakness in stocks that boosted the liquidity demand for the dollar.
U.S. economic news Friday was mixed for the dollar. On the bearish side, the Sep MNI Chicago PMI fell -6.5 to 45.7, weaker than expectations of 51.8 and the steepest pace of contraction in 2-1/4 years. Also, the University of Michigan’s Sep U.S. consumer sentiment was revised downward by -0.9 to 58.6 from the previously reported 59.5. On the bullish side, Aug personal spending rose +0.4% m/m, stronger than expectations of +0.2% m/m. Also, the Aug PCE core deflator rose +0.6% m/m and +4.9% y/y, stronger than expectations of +0.5% m/m and +4.7% y/y, which is hawkish for Fed policy.
Fed comments Friday were hawkish and were bullish for the dollar. Fed Vice Chair Brainard said, "monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target. For these reasons, we are committed to avoiding pulling back prematurely."
Also, Richmond Fed President Barkin said Fed officials have signaled more interest rate increases to come, and Fed tightening will persist until inflation eases. He also said that stopping too early in raising interest rates is a bigger risk than stopping too late.
EUR/USD (^EURUSD) on Friday fell by -0.18%. EUR/USD Friday posted modest losses on lower European government bond yields. The 10-year German bund yield fell -7.3 bp at 2.108%, which weakened the euro’s interest rate differentials. Also, soaring European consumer prices are bearish for EUR/USD after Friday’s economic news showed the Eurozone Sep CPI rose a record +10.0% y/y.
The euro found support Friday on hawkish comments from ECB Executive Board member Schnabel who said "a decline in real wages and a slowdown in aggregate demand may not materially ease current inflationary pressures, so further increases in interest rates will be needed."
The Eurozone Sep CPI rose a record +10.0% y/y, stronger than expectations of +9.7% y/y. The Eurozone Sep core CPI rose a record +4.8% y/y, stronger than expectations of +4.7% y/y.
USD/JPY (^USDJPY) on Friday rose by +0.22%. The yen Friday moved moderately lower. The yen was undercut Friday by higher T-note yields. The yen was also under pressure Friday after the BOJ bought 550 billion yen ($3.8 billion) of 5 to 10-year JGBs in a regular operation today, above expectations of 500 billion yen. Also, the BOJ said it would step up its bond buying in the coming quarter to cap upward pressure on bond yields.
Friday’s Japanese economic news was mixed for the yen. On the bearish side, the Japan Sep consumer confidence index unexpectedly fell -1.7 to 30.8, weaker than expectations of an increase to 33.3. Conversely, Japan Aug industrial production rose +2.7% m/m, stronger than expectations of +0.2% m/m. Also, Japan Aug retail sales rose +1.4% m/m, stronger than expectations of +0.2% m/m and the largest increase in 5 months.
October gold (GCV22) Friday closed up +3.90 (+0.24%), and December silver (SIZ22) closed up +0.327 (+1.75%). Gold and silver Friday settled moderately higher. Global inflation concerns boosted demand for gold as an inflation hedge after Friday’s economic news showed Eurozone Sep CPI rose to a record +10.0% y/y and the U.S. Aug core PCE deflator rose more than expected. Also, weakness in stocks Friday boosted the safe-haven demand for precious metals. Continued fund liquidation of gold limited gains in gold prices as long positions in gold ETF’s dropped to a 2-1/4 year low Thursday.
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