Dollar Jumps as Bond Yields Climb on Strong U.S. Economic News

The dollar index (DXY00) on Monday rose by +0.70%.  The dollar Monday recovered from a 5-1/4 month low and posted moderate gains.  A jump in T-note yields Monday boosted the dollar.  Also, Monday’s better-than-expected U.S economic news was hawkish for Fed policy and bullish for the dollar.  The Chinese yuan on Monday rallied to a 2-1/2 month high against the dollar when China accelerated the easing of Covid restrictions. 

Monday’s U.S. economic news was better-than-expected and bullish for the dollar.  Oct factory orders rose +1.0% m/m, stronger than expectations of +0.7% m/m and the biggest increase in 4 months.  Also, the Nov ISM services index unexpectedly rose +2.1 to 56.5, stronger than expectations of a decline to 53.5.

EUR/USD (^EURUSD) on Monday fell by -0.44%.  The euro Monday fell back from a 5-1/4 month high and posted moderate losses on strength in the dollar.  Also, Eurozone Oct retail sales fell more than expected, and ECB Governing Council members Makhlouf and Villeroy de Galhau said they favored the ECB slowing its rate hike pace to +50 bp this month.  The euro Monday initially moved higher on optimism in the Eurozone’s economic outlook after economic news showed the Eurozone Dec Sentix investor confidence index rose more than expected to a 6-month high. 

Eurozone Oct retail sales fell -1.8% m/m, weaker than expectations of -1.7% m/m and the biggest decline in 10 months.

Eurozone Dec Sentix investor confidence rose +9.9 to a 6-month high of -21.0, stronger than expectations of -27.5.

ECB Governing Council member Makhlouf said the ECB "will probably end up" hiking interest rates by 50 bp at this month's policy meeting.

ECB Governing Council member Villeroy de Galhau said, "it's desirable to bring rates to 2.0%," so the ECB should raise interest rates by 50 bp at the Dec 15 policy meeting.

USD/JPY (^USDJPY) on Monday rose sharpy by +1.76%.  The yen fell sharply Monday on a sharp increase in T-note yields.  Also, an easing of Chinese Covid restrictions sparked a rally in Asian stocks that curbed the safe-haven appeal of the yen.

Monday’s economic news was bullish for the yen after the Japan Nov Jibun Bank services PMI was revised upward by +0.3 to 50.3 from the initially reported 50.0.

February gold (GCG3) on Monday closed down -28.30 (-1.56%), and March silver (SIH23) closed down -0.833 (-3.58%).  Precious metals Monday erased and early rally and closed sharply lower, with gold falling back from a 3-1/2 month high and silver retreating from a 7-month high.  A stronger dollar Monday weighed on metals prices.  Gold prices were also weighed down Monday by higher global government bond yields.  In addition, gold prices fell as stronger-than-expected U.S. economic news Monday increased the chances that the Fed will keep interest rates higher for longer.

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