Dollar Posts Moderate Gains on Higher T-note Yields

The dollar index (DXY00) on Monday rose by +0.34%.  The dollar Monday moved higher as a jump in T-note yields strengthened the dollar’s interest rate differentials.  However, the dollar gave up over half its early gains Monday after stocks rebounded from early losses, reducing the liquidity demand for the dollar.

Fed comments Monday were mixed for the dollar.  On the bullish side for the dollar, Fed Governor Waller said, "we've still got a ways to go" before the Fed stops raising interest rates, despite good news last week on consumer prices.  Conversely, Fed Vice Chair Brainard said it is "probably appropriate" for the Fed to move to a slower pace of interest rate hikes as risks become more two-sided with more restrictive rates.

EUR/USD (^EURUSD) on Monday fell by -0.08%.  The euro Monday posted modest losses after dovish ECB comments from ECB Executive Board member Panetta weighed on European government bond yields and weakened the euro’s interest rate differentials.  However, EUR/USD recovered most of its losses on hawkish comments from ECB Vice President Guindos. 

ECB Vice President Guindos said the ECB is set to hike interest rates again as high inflation is expected to exceed the ECB's target for some time.

ECB Executive Board member Panetta said, "aggressive tightening is not advisable," and monetary policy should aim to avoid protracted contraction.

Eurozone Sep industrial production rose +0.9% m/m, stronger than expectations of +0.5% m/m.

USD/JPY (^USDJPY) on Monday rose by +0.76%.  The yen Monday fell back from a 2-1/2 month high against the dollar and posted moderate losses.  The yen retreated Monday on higher T-note yields.  Also, comments from BOJ Governor Kuroda weighed on the yen when he said Japan’s economy is still recovering from the pandemic and warrants support from monetary easing, signaling no immediate shift in monetary policy. 

December gold (GCZ2) Monday closed up +7.50 (+0.42%), and December silver (SIZ22) closed up +0.446 (+2.06%).  Precious metals prices Monday posted moderate gains, with gold climbing to a 3-month nearest-futures high and silver climbing to a 5-1/4 month high.  Metals prices found support Monday on comments from Fed Vice Chair Brainard, who said it is "probably appropriate" for the Fed to soon move to a slower pace of interest rate hikes.  Silver prices also rose on signs of stronger industrial metals demand after Monday’s economic news showed Eurozone Sep industrial production rose +0.9% m/m, stronger than expectations of +0.5% m/m.  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 Thursday.

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