Dollar Firms on Higher Bond Yields and Weak Stocks

The dollar index (DXY00) on Friday rose by +0.83%.  Higher T-note yields Friday supported gains in the dollar. Also, weakness in the yen is positive for the dollar after the yen Friday tumbled to a new 32-year low against the dollar.  Also, a slump in GBP/USD is giving the dollar a boost after the pound sank when UK Prime Minister Truss announced a revised tax plan and ousted Chancellor of the Exchequer Kwarteng. 

Friday’s U.S. economic news was mixed for the dollar.  On the positive side, Sep retail sales ex-autos unexpectedly rose +0.1% m/m, stronger than expectations of -0.1% m/m.  Also, the University of Michigan U.S. Oct consumer sentiment rose +1.2 to a 6-month high of 59.8, stronger than expectations of 58.8.  Conversely, Sep retail sales were unchanged m/m, weaker than expectations of +0.2% m/m.

Hawkish comments Friday from San Francisco Fed President Daly were bullish for the dollar when she said "the most likely outcome" is for the Fed to raise interest rates to between 4.5% and 5.0% and to "hold at that point for some period of time" following a U.S. inflation reading that was "very disappointing."

EUR/USD (^EURUSD) on Friday fell by -0.56%.  The euro Friday was under pressure from a stronger dollar and concern that ECB actions to tighten monetary policy will push the Eurozone economy into recession.  Also, EUR/USD fell back Friday after JPMorgan Chase cut its forecast for the euro.

ECB President Lagarde said risks to the inflation outlook are primarily on the upside, and "the ECB's Governing Council expects to raise interest rates further over the next several meetings." 

ECB Governing Council member Kazimir said the ECB's inflation-fighting efforts would require taking interest rates to levels that restrict economic expansion.

The German Sep wholesale price index rose +19.9% y/y, the biggest increase in 3 months.

JPMorgan Chase lowered its forecast for EUR/USD to 0.90 in Q1 of 2023 from 0.95, citing Europe's energy crisis, valuations, and growing risks to global growth.

USD/JPY (^USDJPY) on Friday rose by +1.09%.  The yen Friday sank to a new 32-year low against the dollar. The yen continues to weaken on central bank divergence.  The BOJ vows to maintain monetary easing to support Japan’s economy, while the Fed, ECB, and BOE raise interest rates and tighten their monetary policies.  Also, a lack of currency intervention by the BOJ is allowing the yen to continue to weaken against the dollar. 

December gold (GCZ22) Friday closed down -28.10 (-1.68%), and December silver (SIZ22) closed down -0.847 (-4.48%).  Gold and silver Friday retreated down to 2-week lows and closed sharply lower.  A stronger dollar Friday weighed on metals prices. Also, higher global government bond yields were bearish for gold.  In addition, metals prices are under pressure on negative carry-over from Thursday’s U.S. CPI report, which rose more than expected and bolsters the outlook for Fed to boost rates by 75 bp at its November FOMC meeting.  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 Thursday. 

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