Dollar Slides as Stocks Rally

The dollar index (DXY00) on Friday fell by -0.236 (-0.23%).  The dollar Friday fell moderately after a sharp rally in stocks curbed liquidity demand for the dollar.  Also, comments Friday from ECB President Lagarde boosted EUR/USD and weighed on the dollar.  Losses in the dollar were limited Friday from higher T-note yields and an unexpected increase in U.S. May new home sales.

Comments Friday from St. Louis Fed President Bullard were bullish for the dollar when he said he favors "front-loading" of rate hikes to contain inflation and "it is a little early to have the debate about recession probabilities in the U.S."

U.S. economic data Friday was mixed for the dollar.  On the bearish side, the University of Michigan U.S. Jun consumer sentiment index was revised downward by -0.2 to a record low of 50.0 from the originally reported 50.2.  Conversely, May new home sales unexpectedly rose +10.7% m/m to 696,000, stronger than expectations of a decline to 590,000.

EUR/USD (^EURUSD) on Friday rose by +0.0027 (+0.26%).  EUR/USD rose moderately Friday on comments from ECB President Lagarde, who told EU leaders at a summit in Brussels that conditions are in place for the Eurozone economy to continue to grow and that the ECB “will take” the required steps to tame undesirably high inflation. 

Friday’s Eurozone economic data was bearish for EUR/USD after the German Jun IFO business climate fell -0.7 to 92.3, weaker than expectations of 92.8.

USD/JPY (^USDJPY) on Friday rose by +0.25 (+0.19%).  USD/JPY Friday erased early losses and posted moderate gains as higher T-note yields weighed on the yen.  The yen also weakened as a sharp rally in stocks today has reduced the safe-haven demand for the yen.

Friday’s Japanese price data was mixed for the yen.  Japan May national CPI ex-fresh food & energy rose +0.8% y/y, right on expectations. Also, Japan May PPI services prices rose +1.8% y/y, stronger than expectations of +1.7% y/y and the fastest pace of increase in 2 years.

August gold (GCQ22) Friday closed up +0.5 (+0.03%), and July silver closed up +0.083 (+0.39%).  Precious metals Friday recovered early losses and closed slightly higher.  A weaker dollar Friday boosted metals prices.  Silver also moved higher after U.S. May new home sales unexpectedly rose, a sign of strength in industrial metals demand.  Gains in gold were limited by higher global bond yields and comments from St. Louis Fed President Bullard, who said he favors “front-loading” Fed rate hikes.

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.

• Stocks Jump as Recession Fears Ease
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• Dollar Falls as T-Note Yields Tumble and Stocks Rally