Dollar Slightly Lower as Stocks Rally

The dollar index (DXY00) on Monday fell by -0.04%.  The dollar Monday dropped to a 2-week low as a rally in the S&P 500 to a 1-month high Monday reduced the liquidity demand for the dollar. Also, economic concerns weighed on the dollar after Monday’s U.S. economic news showed a gauge of manufacturing activity in October fell to a 2-1/4 year low.  Meanwhile, the Chinese yuan slumped to a 14-year low against the dollar on concern the Chinese economy may stagnate as the government maintains its strict Covid Zero policies. 

Monday’s U.S. economic news was bearish for the dollar.  The U.S. Oct S&P Global manufacturing PMI fell -2.1 to 49.9, weaker than expectations of 51.0 and the steepest pace of contraction in 2-1/4 years.  Also, the Oct S&P Global services PMI unexpectedly fell -2.7 to 46.6, weaker than expectations of an increase to 49.5.

EUR/USD (^EURUSD) on Monday rose by +0.18%.  The euro Monday climbed to a 2-week high and finished modestly higher. The euro has support for expectations that the ECB will increase interest rates by +75 bp at this Thursday’s policy meeting.  Also, an easing of energy crisis concerns in the Eurozone is supportive for EUR/USD after European nat-gas prices Monday tumbled to a 4-1/4 month low.  Gains in the euro were limited after Monday’s economic news showed Eurozone manufacturing activity this month posted its steepest pace of contraction in nearly 2-1/2 years.

Monday’s Eurozone economic news was bearish for EUR/USD.  The Eurozone Oct S&P Global manufacturing PMI fell -1.8 to 46.6, weaker than expectations of 47.9 and the steepest pace of contraction in nearly 2-1/2 years.  Also, the Eurozone Oct S&P Global composite PMI fell -1.0 to 47.1, weaker than expectations of 47.6 and the steepest pace of contraction in nearly two years.

USD/JPY (^USDJPY) on Monday rose by +0.81%.  The yen Monday fell back from a 1-1/2 week high against the dollar and posted moderate losses.  The yen Monday initially moved higher on suspected intervention in the currency market by Japanese authorities to prop up the yen for the second straight session. However, the yen gave up its gains and turned lower on policy divergence between the Fed and BOJ.  The Fed continues to raise interest rates, while the BOJ is expected to maintain QE and record low-interest rates. 

December gold (GCZ22) Monday closed down -2.20 (-0.13%), and December silver (SIZ22) closed up +0.123 (+0.65%).  Gold and silver Monday settled mixed, with silver climbing to a 1-1/2 week high.  A weaker dollar Monday was supportive of metals prices.  Gold was under pressure Monday from higher T-note yields and strength in stocks that reduced the safe-haven appeal of gold.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low last Friday. 

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