The dollar index (DXY00) on Tuesday fell by -0.280 (-0.27%). Strength in stocks Tuesday reduced the liquidity demand for the dollar. Also, the strength in the euro Tuesday undercut the dollar as hawkish ECB comments boosted European government bond yields, strengthening the euro’s interest rate differentials.
U.S. economic data Tuesday was bearish for the dollar. The May Chicago Fed national activity index fell -0.39 to an 8-month low of 0.01, weaker than expectations of no change at 0.47. Also, May existing home sales fell -3.4% m/m to a nearly 2-year low of 5.41 million, although that was slightly stronger than expectations of 5.40 million.
EUR/USD (^EURUSD) on Tuesday rose by +0.0026 (+0.25%). Comments from ECB officials Tuesday bolstered the outlook for the ECB to raise interest rates in July and September and gave EUR/USD a boost. ECB Governing Council member Rehn said that a 25 bp rate hike by the ECB next month is "very likely," and the rate hike in September "will be bigger than that, "given the outlook for inflation. Also, ECB Governing Council member Kazimir said "negative rates must be history by September" and that a 50 bp rate hike by the ECB that month is "highly probable."
USD/JPY (^USDJPY) on Tuesday rose +1.45 (+1.07%). USD/JPY Tuesday rallied to a 24-year high of 136.62 yen/USD. Higher T-note yields Tuesday weighed on the yen. Also, the strength in stocks Tuesday reduced safe-haven demand for the yen among Japanese investors. Divergent central bank policies continue to pressure the yen with the Fed, BOE, and ECB ending their QE programs and lifting interest rates, while the BOJ continues to expand its QE program and maintains record-low interest rates.
August gold (GCQ22) Tuesday closed down -1.8 (-0.10%), and July silver closed up +0.181 (+0.84%). Precious metals Tuesday settled mixed. A weaker dollar Tuesday was supportive of precious metals. Gold gave up its gains Tuesday and posted modest losses on higher global bond yields and a rally in stocks, which curbed the safe-haven demand for 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 has been slowly dropping Covid lockdowns, but elevated Covid cases may keep the country from fully reopening. China, over the weekend, reported an outbreak of Covid infections in the technology hub of Shenzhen, which triggered mass testing and a lockdown of some neighborhoods.
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