Dollar Firms on Higher T-Note Yields

The dollar index (DXY00) on Monday rose by +0.09%.  The dollar Monday recovered from overnight losses and posted moderate gains on higher T-note yields.  However, the strength in stocks Monday curbed the liquidity demand for the dollar.  Also, strength in the euro Monday limited gains in the dollar after EUR/USD climbed to a 9-month high.   

Monday’s U.S. economic news was bearish for the dollar after Dec leading indicators fell -1.0% m/m, weaker than expectations of -0.7% m/m.

EUR/USD (^EURUSD) on Monday rose by +0.02%.  The euro Monday climbed to a 9-month high on comments from ECB Governing Council members Kazimir and Knot, who both said there is no reason for the ECB to slow the pace of interest rate hikes.  An increase in Eurozone Jan consumer confidence to an 11-month high also supported EUR/USD.

ECB Governing Council member Kazimir said there's no reason for the ECB to slow the pace of interest rate hikes, and he believes "we need to deliver two more 50 bp rate hikes."

ECB Governing Council member Knot said the time for the ECB to slow the pace of its interest rate hikes is "still far away," and he wants at least two more 50 bp rate hikes. 

The Eurozone Jan consumer confidence indicator rose +1.1 to an 11-month high of -20.9, although it was weaker than expectations of -20.0.

USD/JPY (^USDJPY) on Monday rose by +0.83%.   The yen Monday was under pressure from higher T-note yields. Also, a rally in Japan’s Nikkei Stock Index Monday to a 1-month high reduced the safe-haven demand for the yen. In addition, BOJ policy uncertainty is pressuring the yen after BOJ Governor Kuroda pushed back on speculation the BOJ would soon end its ultra-easy monetary policy when he said the BOJ "will continue" its expansionary policy. 

February gold (GCG3) on Monday closed up +0.40 (+0.02%), and March silver (SIH23) closed down -0.381 (-1.59%).  Precious metals Monday settled mixed, with silver falling to a 5-week low.  A stronger dollar Monday weighed on metals prices.  Also, higher global bond yields were bearish for metals prices.  Technical selling in sliver futures exacerbated losses after silver prices fell below their 50-day moving average.  Gold found support as an increase in inflation expectations boosted demand for gold as an inflation hedge after the 10-year breakeven inflation rate on Monday rose to a 2-1/2 week high.

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