Dollar Rises on Hawkish Fed Comments and Weak Stocks

The dollar index (DXY00) on Monday rose by +0.28% and posted a new 1-week high. Hawkish comments Monday from Chicago Fed President Evans boosted the dollar when he said he sees the nominal funds rate rising to 4.5% early next year.  Weakness in stocks Monday also boosted the liquidity demand for the dollar. In addition, the dollar found support on safe-haven demand from signs of escalation in the war in Ukraine after Russia on Monday launched its most intense barrage of missile strikes on cities in Ukraine since the beginning of the war. 

Fed comments Monday were mixed for the dollar.  On the positive side, Chicago Fed President Evans said, "inflation has been persistent, and we need to see it come down."  He added, "I see the nominal funds rate rising to 4.5% early next year and then remaining at this level for some time while we assess how our policy adjustments are affecting the economy."  Conversely, Fed Vice Chair Brainard laid out a case for exercising caution as the Fed raises interest rates to curb high inflation, saying that previous Fed rate hikes are still working through the economy in a time of high global and financial uncertainty.

EUR/USD (^EURUSD) on Monday fell by -0.40% and posted a fresh 1-week low.  A stronger dollar Monday weighed on EUR/USD.  Also, a plunge in Eurozone investor confidence is bearish for the euro after Monday’s economic news showed Eurozone Oct Sentix investor confidence fell more than expected to a 2-1/4 year low.

ECB Governing Council member Knot said he sees "at least two significant rate hikes" at the next two ECB policy meetings before the ECB can begin shrinking its balance sheet.

Eurozone Oct Sentix investor confidence fell -6.5 to a 2-1/4 year low of -38.3, weaker than expectations of -34.7.

USD/JPY (^USDJPY) on Monday rose by +0.33%.  The yen Monday slid fell to a 2-week low against the dollar. Trading activity in the yen is muted, with Japanese markets closed Monday for the Health Sports Day holiday.   The yen Monday fell to 145.80, just above the 145.90 level where Japan had intervened last month in the currency market to support the yen.   

December gold (GCZ22) Monday closed down -34.10 (-1.99%), and December silver (SIZ22) closed down -0.640 (-3.16%).  Gold and silver Monday closed sharply lower.  A rally in the dollar index Monday to a 1-week high weighed on metals prices.  Also, higher European government bond yields Monday were bearish for gold prices.  In addition, gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low last Friday. 

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