Dollar Modestly Higher on Weak Stocks and Stronger T-Note Yields

The dollar index (DXY00) on Tuesday rose by +0.08% and posted a 1-1/2 week high. Higher T-note yields Tuesday supported modest gains in the dollar after the 10-year T-note yield rose to a 1-/2 week high of 4.005%.  Also, Tuesday’s slump in the S&P 500 to a 23-month low boosted liquidity demand for the dollar. 

Comments Tuesday from Cleveland Fed President Mester were on the hawkish side and supportive of the dollar when she said, "given the current level of inflation, its broad-based nature, and its persistence, I believe monetary policy will need to become more restrictive in order to put inflation on a sustainable downward path to 2%."

EUR/USD (^EURUSD) on Tuesday rose by +0.08% and posted a fresh 1-week low.  The euro Tuesday rebounded from a 1-1/2 week low and posted modest gains.  Hawkish comments Tuesday from ECB chief economist Lane gave EUR/USD a boost, as well as Tuesday’s economic news that showed an unexpected increase in Italy’s Aug industrial production. 

ECB chief economist Lane said the ECB "is fully aware that further ground needs to be covered in the next several meetings to exit from the prevailing highly accommodative level of policy rates."

Italy Aug industrial production unexpectedly rose +2.3% m/m, stronger than expectations of a -0.1% m/m decline and the largest increase in 6 months.

USD/JPY (^USDJPY) on Tuesday rose by +0.05%.  The yen Tuesday dropped to a 2-1/2 week low against the dollar and matched its 24-year low from September 22.  Higher T-note yields Tuesday undercut the yen.  Also, weaker-than-expected economic news Tuesday weighed in the yen after the Japan Sep eco watchers outlook survey unexpectedly fell.  Losses in the yen were limited as today’s 145.90 low is where Japan had intervened last month in the currency market to support the yen.

The Japan Sep eco watchers outlook survey unexpectedly fell -0.2 to 49.2, weaker than expectations of an increase to 50.8.

December gold (GCZ22) Tuesday closed up +10.80 (+0.64%), and December silver (SIZ22) closed down -0.128 (-0.65%).  Gold and silver Tuesday settled mixed.  A slump in the S&P 500 to a 23-month low Tuesday sparked some safe-haven buying of precious metals.  However, a rally in the dollar index to a 1-1/2 week high Tuesday limited gains in metals.  Also, higher T-note yields Tuesday weighed on gold prices.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low Monday. 

• Stocks Rebound Off of Morning Lows
• Dollar Rises on Hawkish Fed Comments and Weak Stocks
• Stocks Slide on Losses in Chipmakers
• Dollar Gains on Strong U.S. Labor Market