Dollar Slips on Lower T-note Yields and a Stronger Yen

The dollar index (DXY00) on Friday fell by -0.95%.  The dollar Friday retreated from a 3-week high and dropped sharply to a 2-week low.  The dollar fell back Friday on speculation the Fed may slow the pace of its rate hikes after a Wall Street Journal article said the Fed is set to raise interest rates by 75 bp at the November FOMC meeting and then debate the size of future rate hikes.  Also, the action by Japan to intervene in the foreign exchange market Friday to support the yen sparked long liquidation in the dollar.  Losses in the dollar accelerated Friday after stocks recovered from early losses and moved sharply higher, which reduced the liquidity demand for the dollar.  The dollar Friday initially moved higher after the 10-year T-note yield rose to a 15-year high.  Also, weakness in the Chinese yuan gave the dollar a boost after the yuan Friday fell to a 14-year low against the dollar.   

Fed comments Friday were hawkish for Fed policy and supportive of the dollar.  St. Louis Fed President Bullard said the strong U.S. labor market gives the Fed room to raise interest rates to fight inflation.  Also, San Francisco Fed President Daly said recent Fed forecasts showing interest rates rising next year to as high as 5% and then pausing were still "a fairly good indication of where things are looking."

EUR/USD (^EURUSD) on Friday rose by +0.75%.  The euro Friday recovered from a 1-week low and rallied moderately. EUR/USD recovered Friday after news showed an unexpected increase in Eurozone Oct consumer confidence, which sparked some short covering in the euro.  The euro also found support after the 10-year German bund yield Friday climbed to an 11-year high.  EUR/USD Friday initially moved lower after the monthly report from the Bundesbank said, “the German economy is likely on the cusp of a recession.”

USD/JPY (^USDJPY) on Friday fell by -2.08%.  The yen Friday recovered from a new 32-year low against the dollar and rallied sharply to a 1-week high.  The yen rallied Friday after the Nikkei reported that Japan intervened in the foreign exchange market to support the yen.  The yen Friday initially dropped to a 32-year low against the dollar on higher T-note yields after the 10-year T-note yield rose to a nearly 15-year high. Also, comments Friday from BOJ Governor Kuroda weighed on the yen when he said the BOJ would keep conducting monetary easing to support the economy and sustainably and stably achieve its price target. 

Japan’s Sep national CPI rose +3.0% y/y, slightly stronger than expectations of +2.9% y/y and the biggest increase in 8 years.  Also, Japan Sep national CPI ex-food & energy rose +1.8% y/y, right on expectations and the fastest pace of increase in 7-1/2 years.

December gold (GCZ22) Friday closed up +19.50 (+1.19%), and December silver (SIZ22) closed up +0.377 (+2.02%).  Gold and silver Friday recovered from early losses and closed moderately higher, with gold rebounding from a 3-week low.  A reversal in the dollar Friday pushed metals higher after the dollar index retreated from a 3-week high and dropped to a 2-week low.  Also, a reversal in bond yields Friday gave gold prices a boost after the 10-year T-note yield fell back from a 15-year high and moved lower. Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Thursday. 

• Stocks Move Higher as Bond Yields Fall
• Dollar Slightly Lower as British Pound Rebounds
• Stocks Lower as Treasury Yields Rise
• Dollar Rallies as T-Note Yields Climb and Stocks Fall