Dollar Firms on Stronger T-note Yields and Expected 50 bp Fed Rate Hike

The dollar index (DXY00) on Monday rose by +0.661 (+0.64%).  A jump in T-note yields Monday supported gains in the dollar.  The 10-year T-note yield Monday rose to a 3-1/4 year high on expectations for the Fed to raise the fed funds target range by 50 bp at Wednesday’s conclusion of the 2-day FOMC meeting.   A slump in the S&P 500 to an 11-1/2 month low Monday also sparked some liquidity demand for the dollar. 

U.S. economic data Monday was bearish for the dollar.  The U.S. Apr ISM manufacturing index unexpectedly fell -1.7 to a 1-3/4 year low of 55.4, weaker than expectations of an increase to 57.6.  Also, Mar construction spending rose +0.1% m/m, weaker than expectations of +0.8% m/m.

EUR/USD (^EURUSD) on Monday fell by -0.0036 (-0.34%).  Weaker-than-expected Eurozone economic data Monday weighed on the euro.  Also, dovish comments Monday from ECB Vice President Guindos weighed on EUR/USD when he said an ECB rate hike in July was possible but not “likely.”

Eurozone Apr economic confidence fell -1.7 to a 13-month low of 105.0, weaker than expectations of 108.0.

Eurozone Apr consumer confidence was revised downward by -5.1 to a 2-year low of -22.0 from the originally-reported -16.9.

German Mar retail sales unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.

USD/JPY (^USDJPY) on Monday rose by +0.46 (+0.35%).  USD/JPY Monday moved moderately high and is just below last Thursday’s 20-year high.  The yen weakened Monday on higher T-note yields after the 10-year T-note yield jumped to a 3-1/4 year high.  Weaker-than-expected Japanese economic data Monday also weighed on the yen.

The Japan Apr consumer confidence index rose +0.2 to 33.0, weaker than expectations of 34.2.

Japan Apr vehicle sales fell -15.0% y/y, the eighth consecutive month that sales have fallen.

June gold (GCM22) on Monday closed down -48.10 (-2.52%), and July silver (SIN22) closed down -0.501 (-2.17%).  Gold and silver Monday fell sharply, with gold dropping to a 2-1/2 month low and silver falling to a 2-3/4 month low.  A stronger dollar Monday weighed on precious metal prices.  Gold prices were also undercut Monday by higher global bond yields.

Silver prices were weighed down Monday by demand concerns for industrial metals after China and U.S. manufacturing activity last month grew less than expected.   Finally, expectations for the Fed to raise interest rates by 50 bp on Wednesday also undercut precious metals.

The dollar and gold have continued safe-haven support from the negative impact of the worldwide spread of the omicron Covid variant on the global economic recovery.  China reported last Monday that new Covid infections have spread to 26 of 31 mainland provinces, up from 12 at the start of March. Also, the 7-day average of new U.S. Covid infections rose to a 1-3/4 month high of 57,245 last Thursday.