Dollar Gains as Recession Fears Spark Safe-Haven Demand for the Dollar

The dollar index (DXY00) on Friday rose by +0.449 (+0.43%).  The dollar index Friday climbed to a 2-week high and posted moderate gains.  Recession fears sparked safe-haven demand for the dollar after the U.S. Jun ISM manufacturing index expanded at the slowest pace in 2 years.  Also, data that showed record-high inflation in the Eurozone Friday weighed on the euro to the benefit of the dollar as EUR/USD dropped to a 2-week low. 

U.S. May construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.4% m/m and the first decline in 8 months.

The U.S. Jun ISM manufacturing index fell -3.1 to 53.0, weaker than expectations of 54.5 and the slowest pace of expansion in 2 years.

EUR/USD (^EURUSD) on Friday fell by -0.0058 (-0.55%).  EUR/USD on Friday fell to a 2- week low and finished moderately lower.  Dollar strength on Friday weighed on the euro.  Also, record-high inflation in the Eurozone weighed on EUR/USD Friday after Eurozone Jun CPI rose more than expected at a record pace. 

Eurozone Jun CPI rose a record +8.6% y/y (data from 2001), stronger than expectations of +8.5% y/y. Eurozone Jun core CPI unexpectedly eased to +3.7% y/y, a slower pace of increase than expectations of +3.9% y/y.

USD/JPY (^USDJPY) on Friday fell by -0.50 (-0.37%).  USD/JPY Friday moved moderately lower as a slump in T-note yields strengthened the yen.  Also, a -1.7% fall in Japan’s Nikkei Stock Index Friday boosted the safe-haven demand for the yen.  The upside in the yen was limited by Friday’s weaker-than-expected Japanese economic data on Jun vehicle sales and the Q2 Tankan index of large manufacturer sentiment.

Japan Jun vehicle sales fell -15.8% y/y, the tenth consecutive month that auto sales have declined.

The Japan Q2 Tankan index of large manufacturer sentiment fell by -5 to 9, weaker than expectations of 13.

August gold (GCQ22) Friday closed down -5.8 (-0.32%), and September silver (SIU22) closed down -0.685 (-3.37%).  Precious metals Friday retreated, with gold dropping to a 5-month low and silver falling to a 23-month low.  A stronger dollar Friday weighed on metals prices.  Also, weaker than expected U.S. economic data signals reduced industrial metals demand that is bearish for silver prices after the U.S. Jun ISM manufacturing index fell more than expected to a 2-year low and May construction spending unexpected decline for the first time in 8 months. Losses in gold Friday were limited due to lower global bond yields.

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 reported no new Covid infections in Beijing and Shanghai on Monday for the first time in 4 months.  However, the 7-day average of new U.S. Covid infections rose to a 3-1/2 week high of 124,396 on Monday.

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