Dollar Slips on Strength in Euro and a Rally in Stocks

The dollar index (DXY00) on Monday fell by -0.69% and posted a 1-week low. Strength in the euro Monday was bearish for the dollar.  Also, a rally in stocks curbed the liquidity demand for the dollar.  In addition, Monday’s U.S. economic news was bearish for the dollar after Sep U.S. consumer credit rose +$24.976 billion, weaker than expectations of +$30.0 billion.

EUR/USD (^EURUSD) on Monday rallied by +0.73% and climbed to a 1-week high.  Better-than-expected Eurozone industrial production and confidence reports supported the euro.  Also, hawkish comments from ECB President Lagarde and ECB Governing Council member Villeroy de Galhau were bullish for the euro.

The Eurozone Nov Sentix investor confidence index rose +7.4 to -30.9, stronger than expectations of -35.0.

Eurozone Sep industrial production rose +0.6% m/m, stronger than expectations of +0.1% m/m.

ECB President Lagarde said inflation is too high and interest rates will rise more to bring inflation back to 2%.  Also, ECB Governing Council member Villeroy de Galhau said the ECB shouldn't stop raising interest rates until underlying inflation "has clearly peaked."

USD/JPY (^USDJPY) fell by -0.03%.  The yen Monday posted modest gains.  Dollar weakness Monday sparked some short covering in the yen.  The yen was also underpinned by speculation that further weakness in the yen would prompt additional currency intervention from Japan in support of the yen.  Gains in the yen were limited Monday by higher T-note yields. 

December gold (GCZ2) Monday closed up +3.90 (+0.23%), and December silver (SIZ22) closed up +0.135 (+0.65%).  Precious metals prices Monday posted moderate gains, with silver climbing to a 1-month high. A slump in the dollar index Monday to a 1-week low was bullish for metals prices.  Also, rising Covid infections in China boosted safe-haven demand for precious metals after China reported 5,436 new Covid infections on Sunday, the most in 6 months.  However, gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low last Friday.

• Dollar Falls Sharply as Fed Officials Allow for Smaller Rate Hikes
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