Dollar Posts Modest Losses on Lower T-note Yields and Weaker-Than-Expected U.S. Economic Data

The dollar index (DXY00) on Monday fell -0.124 (-0.13%).  EUR/USD (^EURUSD) rose +0.0003 (+0.03%).  USD/JPY (^USDJPY) fell -0.45 (-0.41%).  The dollar index on Monday posted modest losses.  A decline in the 10-year T-note yield to a 1-1/2 week low Monday of 1.148% weakened the dollar’s interest rate differentials and weighed on the dollar.  The dollar maintained moderate losses on weaker-than-expected U.S. economic data.

EUR/USD (^EURUSD) on Monday moved slightly higher on Eurozone economic optimism.  The Eurozone July manufacturing PMI was revised upward by +0.2 to 62.8 from the previously-reported 62.6, and German June retail sales rose +4.2% m/m, stronger than expectations of +2.0% m/m.  Gains in EUR/USD were limited after the 10-year German bund yield fell to a 6-month low of -0.487% on Monday.  USD/JPY (^USDJPY) on Monday fell moderately to a 2-week low.  The yen saw support after the Japan July consumer confidence index unexpectedly rose +0.1 to a 17-month high of 37.5, a bullish factor for the yen.

Monday’s U.S. economic data was weaker than expected and bearish for the dollar.  The U.S. July ISM manufacturing index unexpectedly fell -1.1 to a 6-month low of 59.5, weaker than expectations of an increase to 61.0.  Also, June construction spending rose +0.1% m/m, weaker than expectations of +0.3% m/m.

Comments Monday from Fed Governor Waller were hawkish for Fed policy and supportive for the dollar. Waller said he favors “going early and going fast” on tapering asset purchases and he could be ready to make a taper announcement by September.

August gold (GCQ21) on Monday closed up +5.50 (+0.30%), and Sep silver (SIU21) closed up +0.0285 (+0.11%).  Gold and silver prices on Monday closed slightly higher on a weaker dollar and lower T-note yields.  Gains in silver prices were contained by industrial metal demand concerns after the China July manufacturing PMI fell to a 1-1/2 year low and after the U.S. July ISM manufacturing index unexpectedly fell to a 6-month low. 

The dollar and gold still have safe-haven support from concern the worldwide spread of the delta Covid variant will crimp the global economic recovery.  The 7-day average of new U.S. Covid infections rose to a 5-1/2 month high Sunday of 79,770.  Also, Japan on Friday extended a state of emergency to areas surrounding Tokyo until the end of August.   In addition, the positive Covid infection rate in the UK rose to 1.57 on Friday, the highest in 6 months.