Dollar Gains on Higher T-note Yields

The dollar index (DXY00) on Friday rose by +0.22% on the +6 bp rise in the 10-year T-note yield to 2.83%, which added to Thursday’s rise of +8 bp and improved the dollar’s interest rate differentials.

T-note yields rose as Boston Fed President Susan Collins added to the recent spate of hawkish Fed commentary by saying that she hasn’t made a decision on a December rate hike and that a +75 bp rate hike remains on the table.  She said, “I do not see clear, significant evidence that the overall inflation rate is coming down at this point.”

The dollar closed higher Friday despite weak U.S. economic news.  The Oct U.S. existing home sales report fell by -5.9% to 4.43 million units, which was a negative factor for the housing market.  However, that was at least slightly better than expectations for a decline to 4.40 million.  Existing home sales have now fallen for a record nine consecutive months as high mortgage rates pummel demand.

Friday’s Oct U.S. leading economic indicators report fell by -0.8% m/m, much weaker than expectations of -0.4%.  The Sep LEI was revised lower to -0.5% from -0.4% m/m.

EUR/USD (^EURUSD) Friday fell by -0.41%, while USD/JPY (^USDJPY) rose +0.13%.

The euro was undercut by ECB President Lagarde’s recession warning on Friday.  Ms. Lagarde said, “We expect to raise rates further – and withdrawing accommodation may not be enough.”  She said that the “risk of a recession” has increased.

December gold (GCZ2) on Friday closed -8.60 (-0.49%), and December silver (SIZ22) closed +0.022 (+0.10%).   Gold prices were under pressure Friday from the mild +0.2% rally in the dollar index.  Gold also saw downward pressure from higher T-note yields and hawkish comments from Boston Fed President Collins.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Tuesday and was just slightly above that level on Thursday.

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