The dollar index (DXY00) on Tuesday rose by +0.98% and posted a 2-week high. A slump in European government bond yields Tuesday weakened the interest rate differentials of the euro and the British pound, benefiting the dollar. The dollar extended its gains Tuesday after stocks sold off, which boosted the liquidity demand for the dollar.
Tuesday’s U.S economic news was bullish for the dollar after Nov construction spending unexpectedly rose +0.2% m/m, stronger than expectations of a -0.4% m/m decline. Also, the Dec S&P Global manufacturing PMI was unchanged at 46.2, right on expectations.
EUR/USD (^EURUSD) on Tuesday fell by -0.95% and posted a 3-week low. The euro retreated Tuesday on dollar strength and lower German bond yields. Weaker-than-expected German December consumer price news on Tuesday was dovish for ECB policy and knocked the 10-year German bund yield down to a 1-1/2 week low, which weakened the euro’s interest rate differentials.Â
Tuesday’s German labor market news was better than expected and was bullish for EUR/USD. German Dec unemployment unexpectedly fell -13,000, showing a stronger labor market than expectations of +15,000. The Dec unemployment rate was unchanged at 5.5%, showing a stronger labor market than expectations of 5.6%.
Germany's Dec CPI (EU harmonized) rose +9.6% y/y, weaker than expectations of +9.0% y/y and the slowest pace of increase in 4 months.
USD/JPY (^USDJPY) on Tuesday fell by -0.03%.  The yen Tuesday extended last week’s rally to a 7-month high against the dollar.  Lower T-note yields Tuesday were bullish for the yen. Also, speculation that the BOJ will end its negative-rate policy and raise interest rates this year is fueling some short covering in the yen. Trading activity in the yen Tuesday was dampened since the Japanese markets were closed for the New Year holiday.
February gold (GCG3) on Tuesday closed up +19.90 (+1.09%), and March silver (SIH23) closed up +0.196 (+0.82%). Precious metals Tuesday rallied moderately, with gold climbing to a 6-1/2 month high and silver posting an 8-1/2 month high. A slump in global bond yields Tuesday pushed gold prices higher. Silver prices jumped Tuesday on signs that Covid infections in China may have peaked, which would lead to an increase in economic activity and industrial metals demand. Metals prices fell back from their best levels Tuesday after the dollar index rallied to a 2-week high.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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