Dollar Falls as T-Note Yields Tumble and Stocks Rally

The dollar index (DXY00) on Wednesday fell by -0.274 (-0.26%).  The dollar Wednesday gave up an overnight advance and turned lower as a slide in the 10-year T-note yield to a 1-1/2 week undercut the dollar’s interest rate differentials.  Also, a rebound in stocks from early losses pressured the dollar.  The dollar Wednesday initially moved higher in overnight trade as stocks slumped, which boosted the liquidity demand for the dollar.

Comments from Fed Chair Powell were mixed for the dollar when he said the Fed is strongly committed to returning inflation to 2% and that "ongoing rate hikes are appropriate."  He also said that "the U.S. economy is very strong and can handle tighter monetary policy."  He added that while he did not see the likelihood of a recession as particularly elevated right now, it was "certainly a possibility."

Comments from Chicago Fed President Evans were slightly dovish and negative for the dollar when he said a 75 bp rate hike by the Fed is a "very reasonable place" for the July FOMC meeting, and I don't think a 100 bp Fed rate increase is necessary. He added, "I think that by the end of the year, we will be doing 25 bp rate hikes."

EUR/USD (^EURUSD) on Wednesday rose by +0.0039 (+0.37%).  EUR/USD Wednesday climbed to a 1-1/2 week high on dollar weakness and hawkish ECB comments.  ECB Vice President Guindos said Eurozone consumer price growth would remain above 8% in the coming months and only start to slow after the summer. Gains in the euro were limited after the Eurozone June consumer confidence indicator unexpectedly fell -2.4 to a 2-year low of -23.6, weaker than expectations of an improvement to -20.5.

USD/JPY (^USDJPY) on Wednesday fell by -0.38 (-0.28%).  USD/JPY Wednesday fell back from a new 24-year high after a fall in T-note yields sparked short-covering in the yen. USD/JPY initially rose to a fresh 24-year high Wednesday as the yen weakened after the minutes of the BOJ’s April policy meeting said the yen’s depreciation has had a “positive impact” on Japan’s economy.

August gold (GCQ22) Wednesday closed down -0.4 (-0.02%), and July silver closed down -0.347 (-1.59%).  Precious metals Wednesday closed lower.  A rally in stocks Wednesday curbed the safe-haven demand for precious metals.  Silver prices were also under pressure Wednesday on negative carry-over from a more than -2% drop in copper prices to a 3-1/2 month low on concern a slowdown in the global economy will reduce demand for industrial metals.  Losses in gold were limited by a weak dollar and a decline in global bond yields.  Gold also had increased demand as an inflation hedge after Wednesday’s data showed UK May CPI rose +9.1% /y/y, the most in 40 years.

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.  New Covid infections in China fell to 22 on Tuesday, a 4-month low.  Also, the 7-day average of new U.S. Covid infections fell to a 3-week low of 90,092 on Monday.

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