Dollar Firms as T-note Yields Climb

The dollar index (DXY00) on Tuesday rose by +0.24%.  Higher T-note yields Tuesday strengthened the dollar’s interest rate differentials and boosted the dollar.  Also, hawkish comments from Fed Governor Bowman were supportive of the dollar when she said she expects the FOMC to keep raising interest rates.

Fed Governor Bowman said, "in recent months, we've seen a decline in some measures of inflation, but we have a lot more work to do, so I expect the FOMC will continue raising interest rates to tighten monetary policy, as we stated after our December meeting."

Tuesday’s U.S. economic news was negative for the dollar after Nov wholesale trade sales unexpectedly fell -0.6% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 4 months.

EUR/USD (^EURUSD) on Tuesday rose by +0.13% and held just below Monday’s 7-month high.  Better-than-expected French manufacturing and industrial production reports were supportive of the euro.  Also, hawkish comments from ECB Executive Board member Schnabel on Tuesday pushed bund yields higher and supported EUR/USD when she said, "interest rates will still have to rise significantly at a steady pace” to curb inflation.  In addition, the euro found support after Goldman Sachs said it no longer predicts a recession in the Eurozone this year.

French Nov industrial production rose +2.0% m/m, stronger than expectations of +0.8% m/m.  Also, French Nov manufacturing production rose +2.4% m/m, stronger than expectations of +0.8% m/m

ECB Executive Board member Schnabel said, "interest rates will still have to rise significantly at a steady pace to reach levels that are significantly restrictive to ensure a timely return of inflation to our 2% medium-term target."

Goldman Sachs no longer predicts a recession in the Eurozone this year as it raised its 2023 Eurozone GDP forecast to +0.6% compared with an earlier forecast for a contraction of -0.1%, citing the sharp fall in nat-gas prices and the reopening of China's economy earlier than anticipated.

USD/JPY (^USDJPY) on Tuesday rose by +0.22%.   Higher T-note yields Tuesday weighed on the yen.  Also, weaker-than-expected news on Japanese Nov household spending undercut the yen.  Losses in the yen were limited after the 10-year Japan JGB bond yield climbed to a 7-1/2 year high after Tokyo Dec consumer prices ex-fresh food rose more than expected by the most in 40 years.

Japan Nov household spending unexpectedly fell -1.2% y/y, weaker than expectations of +0.5% y/y and the biggest decline in 7 months.

Japan Tokyo Dec CPI ex-fresh food rose +4.0% y/y, stronger than expectations of +3.8% y/y and the largest increase in 40 years.

February gold (GCG3) on Tuesday closed down -1.30 (-0.07%), and March silver (SIH23) closed down -0.206 (-0.86%).  Precious metals Tuesday gave up an early advance and closed moderately lower.  A stronger dollar Tuesday was bearish for metals prices.  Also, higher global bond yields Tuesday undercut gold prices.  Gold on Tuesday initially moved higher as signs of faster global inflation increased demand for gold as an inflation hedge after Tokyo Dec CPI ex-fresh food rose at a stronger-than-expected +4.0% y/y pace, the most in 40 years. 

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