Dollar Slightly Higher as the Yen Continues to Fall

The dollar index (DXY00) on Tuesday rose by +0.10%.  The dollar Tuesday recovered from a 1-1/2 week low and posted modest gains.  Weakness in the yen Tuesday supported the dollar after the yen fell to a new 32-year low against the dollar.  Also, better-than-expected U.S. economic news on Sep manufacturing production supported the dollar.  The dollar Tuesday initially fell as a rally in stocks reduced the liquidity demand for the dollar.  Also, lower T-note yields Tuesday weakened the dollar’s interest rate differentials. 

Tuesday’s U.S. economic news was mixed for the dollar.  On the bullish side, Sep manufacturing production rose +0.4% m/m, stronger than expectations of +0.3% m/m.  Also, the Sep capacity utilization rate rose +0.2 to a 14-year high of 80.3%, higher than expectations of 80.0%.  On the negative side, the Oct NAHB housing market index fell -8 to a 2-1/4 year low of 38, weaker than expectations of 43.

Tuesday’s comments from Atlanta Fed President Bostic were hawkish for Fed policy and bullish for the dollar when he said, "the top line message that is front forward for me is that inflation is high, in fact, it's too high, and we need to get that under control."

EUR/USD (^EURUSD) on Tuesday rose by +0.07%.  The euro on Tuesday rose to a 1-1/2 week high and posted modest gains.  Stronger-than-expected Eurozone economic news Tuesday on Eurozone Sep new car registrations and German Oct business sentiment supported EUR/USD.  Also, an easing of energy crisis concerns is bullish for the euro after European nat-gas prices Tuesday sank to a 4-month low.

Tuesday’s Eurozone economic news was better-than-expected and positive for EUR/USD.  The German Oct ZEW survey expectations of economic growth unexpectedly rose +2.7 to -59.2, stronger than expectations of a decline to -66.5.  Also, Eurozone Sep new car registrations rose +9.6% y/y, the largest increase in 15 months.

USD/JPY (^USDJPY) on Tuesday rose by +0.13%.  The yen on Tuesday fell to a new 32-year low against the dollar.  Central bank policy divergence is the main bearish factor for the yen as the Fed, ECB, and BOE are raising interest rates and tightening monetary policy, while the BOJ maintains QE and record low-interest rates.  Losses in the yen were limited Tuesday on concern the BOJ was close to intervening in the currency market again after Japanese Finance Minister Suzuki said the BOJ wouldn't tolerate speculation or excessive moves in the forex market and that he will be watching market moves with a sense of urgency. Lower T-note yields Tuesday were also supportive for the yen. 

December gold (GCZ22) Tuesday closed down -8.20 (-0.49%), and December silver (SIZ22) closed down -0.119 (-0.64%).  Gold and silver Tuesday posted moderate losses.  A stronger dollar Tuesday was bearish for metals prices.  Also, a rally in the S&P 500 to a 1-1/2 week high Tuesday curbed the safe-haven demand for precious metals.  Losses in gold were limited due to lower T-note yields.  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 Monday. 

• Stocks Rally on Positive Corporate Earnings Results and Lower Bond Yields
• Dollar Declines as Stocks Climb and the British Pound Rallies
• Stocks Jump on Lower Bond Yields and Strength in Bank and Tech Stocks
• Dollar Firms on Higher Bond Yields and Weak Stocks