The dollar index (DXY00) on Tuesday moved up by +0.05% and posted a new 20-year high. Weakness in stocks Tuesday boosted the liquidity demand for the dollar. However, the dollar fell back from its best levels Tuesday on strength in the yen after Japanese Finance Minister Suzuki warned the Japanese government would take the “appropriate” steps if needed to halt the yen’s plunge.
Comments Tuesday from Richmond Fed President Barkin were slightly hawkish and supportive for the dollar. He said he expects another elevated reading from U.S. June CPI and backs raising interest rates to neutral "expeditiously as we can."
EUR/USD (^EURUSD) Tuesday rose by +0.04% and recovered slightly from a new 20-year low. Short-covering gave the euro a boost Tuesday when EUR/USD failed to fall below the 1.000 level. EUR/USD initially dropped to a new 20-year low Tuesday of 1.000 after data showed the German July ZEW survey expectations of economic growth fell to an 11-year low.
The German July ZEW survey expectations of economic growth fell -25.8 to an 11-year low of -53.8, weaker than expectations of -40.5.
USD/JPY (^USDJPY) Tuesday fell -0.45% as it retreated from Monday’s 24-year high. Short-covering boosted the yen Tuesday on comments from Japanese Finance Minister Suzuki, who warned that the slump in the yen is causing alarm in the Japanese government and that he’ll take “appropriate measures if necessary” to halt the spiral.
Japan’s Jun PPI eased to +9.2% y/y from +9.3% y/y in May, stronger than expectations of +8.9% y/y.
August gold (GCQ22) Tuesday fell by -6.90 (-0.40%), and September silver (SIU22) fell by -1.74 (-0.91%). Precious metals Tuesday posted moderate losses, with gold falling to a 9-1/2 month low and silver sliding to a 2-year low. A rally in the dollar index Tuesday to a new 20-year high weighed on metals prices. Reduced demand for gold as an inflation hedge also undercut gold prices after the U.S. 10-year breakeven inflation rate fell to a 10-1/2 month low Tuesday of 2.269%. Silver is also under pressure on concern a jump in Covid infection in China will lead to additional lockdown and restrictions that curb economic activity and weighs on China’s industrial metals demand.
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. Shanghai reported 59 new Covid infections Monday, the fourth day in a row case numbers have stayed above 50. The jump in new cases has triggered two additional rounds of mass testing this week across 9 of Shanghai’s 16 districts. Many of the new Covid infections were found to be from the more contagious BA.5 sub-strain of the omicron variant. Already, close to 30 million people are under some form of movement restrictions in China as the government maintains its strict Covid-Zero strategy. Also, Tokyo reported 11,511 new coronavirus cases Tuesday, more than double from a week ago and the most in 4 months.
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