Dollar Climbs as Stocks Swoon and Bond Yields Rise

The dollar index (DXY00) on Wednesday rose by +0.81%.  A slump in stocks and cryptocurrencies Wednesday boosted the liquidity demand for the dollar.  Also, higher T-note yields Wednesday strengthened the dollar’s interest rate differentials.  In addition, the weakness in the yuan is supportive of the dollar.  The yuan fell on concern China will have to maintain or expand pandemic lockdowns after new Covid infections in China climbed to a fresh 6-month high Tuesday.

EUR/USD (^EURUSD) on Wednesday fell by -0.66%.  The euro was under pressure Wednesday after the German government forecasted the German economy would shrink by -0.2% next year due to the “massive” burden on households and companies from soaring energy costs and inflation.  Also, German Chancellor Scholz’s economic advisers more than doubled their inflation projection for Germany next year to +7.4% from +3.4%. 

USD/JPY (^USDJPY) on Wednesday rose by +0.60%.  The yen Wednesday fell back from a 1-1/2 week high against the dollar and posted moderate losses.  Higher T-note yields Wednesday undercut the yen.  Also, weaker-than-expected Japanese economic news was bearish for the yen after the Japan Oct eco watchers survey outlook unexpectedly fell -2.8 to 46.4, weaker than expectations of an increase to 50.1.

December gold (GCZ2) Wednesday closed down -2.30 (-0.13%), and December silver (SIZ22) closed down -0.175 (-0.81%).  Precious metals prices Wednesday erased an early rally and closed slightly lower.  A stronger dollar Wednesday undercut metals prices.  Also, higher T-note yields weighed on gold prices.  Precious metals Wednesday initially opened higher on increased safe-haven demand after China reported 7,740 new Covid infections on Tuesday, the most in over six months.  A slump in stocks Wednesday limited losses in precious metals on increased safe-haven demand. Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Monday.

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