Dollar Modestly Higher on Strong U.S. Producer Prices and Weak Yen

The dollar index (DXY00) on Wednesday rose by +0.08% and posted a new 1-1/2 week high.  The dollar garnered support from Wednesday’s news that showed U.S Sep producer prices rose more than expected, which is hawkish for Fed policy.  Also, weakness in the yen is supportive of the dollar after the yen Wednesday tumbled to a new 24-year low against the dollar. 

U.S. Sep PPI final demand rose +0.4% m/m and +8.5% y/y, stronger than expectations of +0.2% m/m and +8.4% y/y.  Sep PPI ex-food & energy was up +7.2% y/y, slightly lower than expectations of +7.3% y/y.

Comments from U.S. Treasury Secretary Yellen gave the dollar a boost when she said that recent strength in the dollar is the "logical outcome" of different global monetary stances.  Also, Minneapolis Fed President Kashkari said the Fed is working hard to get inflation back down to 2%, and it must "walk the walk" to validate market expectations.

The minutes of the Sep 20-21 FOMC meeting was slightly hawkish and supportive of the dollar. The minutes said policymakers "reaffirmed their strong commitment" to returning inflation to the Fed's 2% goal and stressed staying the course even as jobless rose. Also, many officials saw the need to maintain restrictive rates for "some time," with several saying such a stance could be held "as long as necessary."

EUR/USD (^EURUSD) on Wednesday fell by -0.05%.  A stronger dollar Wednesday weighed on the euro. Also, Wednesday’s action by the German Economy Ministry to cut its German 2022 and 2023 GDP forecasts was bearish for EUR/USD.  However, losses in the euro were limited after Wednesday’s economic news showed Eurozone Aug industrial production rose more than expected at the strongest pace in 9 months.

Germany's Economy Ministry today cut its German 2022 GDP forecast to 1.4% from an April estimate of 2.2% and cut its German 2023 GDP forecast to a contraction of -0.4% from an April forecast of +2.5% expansion, citing soaring power costs that will crimp industrial output and dampen consumer spending.

Eurozone Aug industrial production rose +1.5% m/m, stronger than expectations of +0.7% m/m and the biggest increase in 9 months.

USD/JPY (^USDJPY) on Wednesday rose by +0.69%, and the yen sank to a new 24-year low against the dollar.  The yen tumbled Wednesday after BOJ Governor Kuroda pledged to maintain monetary easing to support Japan’s economy, which is still recovering from the pandemic. Also, Wednesday’s economic news showed Japan’s Aug core machine orders fell more than expected, a negative for the yen.

BOJ Governor Kuroda said the BOJ certainly must continue with monetary easing to ensure price stability.

Japan Aug core machine orders fell -5.8% m/m, weaker than expectations of -2.8% m/m and the biggest decline in 6 months.

December gold (GCZ22) Wednesday closed down -8.50 (-0.50%), and December silver (SIZ22) closed down -0.549 (-2.82%).  Gold and silver Wednesday posted moderate losses, with silver falling to a 1-1/2 week low.  A jump in the 10-year UK gilt yield to a 14-year high Wednesday and the jump in the 10-year German bund yield to an 11-year high is bearish for gold prices. Silver was also under pressure Wednesday after the German Economy Ministry cut its German 2022 and 2023 GDP forecasts, which is negative for industrial metals demand.  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 Tuesday. 

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