Dollar Slips on Strong Stocks and Lower T-Note Yields

The dollar index (DXY00) on Monday fell by -0.28%.  The dollar index Monday dropped to a 1-week low and posted moderate losses. The dollar Monday gave up an early advance and moved lower as a sharp rally in stocks curbed the dollar’s liquidity demand.  Also, weaker than expected U.S. economic news Monday undercut T-note note yields and weakened the dollar’s interest rate differentials.

Monday’s U.S. economic news was bearish for the dollar.  The Sep ISM manufacturing index fell -1.9 to 50.9, weaker than expectations of 52.0 and the weakest level in 2-1/4 years.  Also, Aug construction spending fell -0.7% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 1-1/2 years.

Fed comments Monday were hawkish for monetary policy and bullish for the dollar.  Richmond Fed President Barkin said that the current shifts taking place in the post-pandemic economy could potentially lead to more inflationary headwinds that require tighter monetary policy.  Also, New York Fed President Williams said the Fed's job is "not yet done," and he sees economic growth flat in 2022 and inflation falling to around 3% next year.

EUR/USD (^EURUSD) on Monday rose by +0.18%.  EUR/USD Monday today rebounded from early losses and is moderately higher.  Dollar weakness Monday gave EUR/USD a boost along with hawkish comments from ECB Governing Council member Vasle who said the ECB is likely to raise interest rates at its "next few" meetings.  EUR/USD Monday initially moved lower on economic concerns after the Eurozone Sep global manufacturing PMI was revised downward to a 2-1/4 year low. 

ECB Governing Council member Vasle said the ECB is likely to raise interest rates at its "next few" meetings as it confronts "double-digit" inflation.  He also hinted the ECB would raise interest rates by 75 bp for the second straight meeting when he added, "we will most probably retain the pace" of tightening.

The Eurozone Sep global manufacturing PMI was revised downward by -0.1 to 48.4 from the previously reported 48.5, the steepest pace of contraction in 2-1/4 years.

USD/JPY (^USDJPY) on Monday fell by -0.02%.  The yen Monday recovered from a 1-week low against the dollar and posted moderate gains after T-note yields slumped.  The yen Monday initially fell to a 1-week low on comments from Japanese Prime Minister Kishida, who said he would "press ahead with strengthening an economic structure that capitalizes on the weak yen." Economic concerns also weighed on the yen after Monday’s economic news showed the Japan Q3 Tankan survey large-manufacturing business conditions index unexpectedly fell, and the Japan Sep Jibun bank manufacturing PMI was revised downward.

The Japan Q3 Tankan survey large-manufacturing business conditions index unexpectedly fell -1 to 8, weaker than expectations of an increase to 10.

The Japan Sep Jibun bank manufacturing PMI was revised downward by -0.2 to a 20-month low of 50.8 from the previously reported 51.0.

Japan Sep vehicle sales rose +17.8% y/y, the largest increase in 15 months.

December gold (GCZ22) Monday closed up +30.00 (+1.79%), and December silver (SIZ22) closed up +1.550 (+8.14%).  Gold and silver Monday rallied sharply, with gold posting a 3-1/2 week and silver jumping to a 1-1/2 month high.  Also, lower global bond yields Monday were bullish for gold prices.  In addition, rising risks in financial markets are also boosting safe-haven demand for precious metals after Credit Suisse Group AG Monday fell to a record low on concern about its financial stability.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/4 year low last Friday. 

• Stocks Soar as Weak U.S. Economic News Pushes T-note Yields Lower
• Stocks Modestly Higher on Lower T-note Yields
• Dollar Consolidates Below Wednesday’s 20-Year High
• Stocks Fall on Hawkish Fed Rhetoric and Higher Bond Yields