Dollar Declines as Stocks Climb and the British Pound Rallies

The dollar index (DXY00) on Monday fell by -1.08%.  The dollar Monday tumbled to a 1-week low and finished moderately lower.  Monday’s stock rally curbed the liquidity demand for the dollar.  Also, lower T-note yields Monday weakened the dollar’s interest rate differentials.  In addition, strength in GBP/USD undercut the dollar as the British pound rallied to a 1-1/2 week high against the dollar Monday after UK Chancellor of the Exchequer Hunt announced that UK Prime Minister Truss’s package of unfunded tax cuts would be unwound.

Monday’s U.S. economic news was bearish for the dollar after the Oct Empire manufacturing survey general business conditions fell -7.6 to -9.1, weaker than expectations of -4.3. 

EUR/USD (^EURUSD) on Monday rose by +1.15%.  The euro on Monday rallied to a 1-week high.  Dollar weakness Monday has sparked short covering in EUR/USD.  Also, hawkish comments from ECB Governing Council member and Bundesbank President Nagel gave the euro a boost when he said ECB Interest rate increases must continue after October.  In addition, an easing of energy crisis concerns in the Eurozone supports EUR/USD after European nat-gas prices tumbled to a 3-1/2 month low Monday.

ECB Governing Council member and Bundesbank President Nagel said ECB Interest rate increases must continue after the October ECB meeting.  He added that due to tensions in energy markets, there are "significant upside risks" to the inflation outlook.

USD/JPY (^USDJPY) on Monday rose by +0.18%.  The yen Monday fell to a new 32-year low against the dollar. Comments from BOJ Governor Kuroda weighed on the yen when he told the Japanese parliament Monday that it’s appropriate for the BOJ to continue with monetary easing.  However, the yen recovered nearly all of its losses today as T-note yields declined.  Better-than-expected Japanese economic news Monday was also bullish for the yen. 

The Japan Aug tertiary industry index rose +0.7% m/m, stronger than expectations of +0.3% m/m.

Japan Aug industrial production was revised upward by +0.7 to +3.4% m/m from the previously reported +2.7% m/m.

December gold (GCZ22) Monday closed up +15.10 (+0.92%), and December silver (SIZ22) closed up +0.648 (+3.59%).  Gold and silver Monday rallied moderately.  A fall in the dollar index Monday to a 1-week low was bullish for metals prices.  Also, lower global government bond yields Monday were supportive of gold.  A jump in inflation expectations boosted demand for precious metals as an inflation hedge after the 10-year breakeven inflation rate Monday rose to a 1-month high of 2.459%.   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. 

• Stocks Jump on Lower Bond Yields and Strength in Bank and Tech Stocks
• Dollar Firms on Higher Bond Yields and Weak Stocks
• Stocks Give Up Early Gains on Rising Inflation Expectations
• Dollar Retreats as Stocks Recover