Dollar Slips as EUR/USD Strengthens ahead of Lagarde Comments

The dollar index (DXY00) on Monday fell by -0.230 (-0.22%).  The dollar Monday dropped to a 1-week low and posted moderate losses on strength in EUR/USD.   Monday’s U.S. economic data was mixed for the dollar.  However, higher T-note yields Monday limited losses in the dollar along with expectations that end-of-month and quarter rebalancing flows are seen as supporting the dollar. 

The Bank for International Settlements said, "the risk of stagflation looms over the global economy as the threat of a new inflation era coincides with a weaker outlook for growth and elevated financial vulnerabilities."

U.S. economic data Friday was mixed for the dollar.  On the bearish side, the Jun Dallas Fed manufacturing outlook general business activity unexpectedly fell -10.4 to a 2-year low of -17.7, weaker than expectations of an increase to -6.5.  Conversely, May capital goods new orders nondefense ex-aircraft & parts, a proxy for capital spending, rose +0.5% m/m, stronger than expectations of +0.2% m/m. Also, May pending home sales unexpectedly rose +0.7% m/m, stronger than expectations of -4.9% m/m and the first increase in seven months.

EUR/USD (^EURUSD) on Monday rose by +0.0034 (+0.32%).  EUR/USD Monday climbed to a 2-week high and posted moderate gains.  Weakness in the dollar Monday supported gains in EUR/USD.  Also, short-covering pushed the euro higher ahead of Tuesday’s comments from ECB President Lagarde a the ECB Forum on Central Banking in Sintra, Portugal.

USD/JPY (^USDJPY) on Monday rose by +0.22 (+0.16%).  USD/JPY Monday erased early losses and posted moderate gains as higher T-note yields weighed on the yen.  A +1.43% rally in the Nikkei Stock Index Monday to a 1-week high also reduced the safe-haven demand for the yen.

August gold (GCQ22) Monday closed down -5.5 (-0.30%), and July silver closed up +0.043 (+0.20%).  Precious metals on Monday settled mixed.  A fall in the dollar index Monday to a 1-week low was supportive for metals prices.  Silver also gained after Monday’s U.S. economic data showed an unexpected increase in May pending home sales and a larger-than-expected increase in U.S. May capital goods orders, a sign of stronger demand for industrial metals. However, higher global bond yields Monday weighed on gold prices.

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 last Tuesday, a 4-1/4 month low.  Also, the 7-day average of new U.S. Covid infections fell to a 4-week low of 90,092 last Monday.

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