Dollar Retreats on Expectations for a Less Aggressive Fed

The dollar index (DXY00) on Monday fell by -0.66%.  The dollar on Monday extended last Friday’s losses, which occurred after St. Louis Fed President Bullard and Atlanta Fed President Bostic argued against raising interest rates by 100 bp at the upcoming July 26-27 FOMC meeting.  The dollar also fell back Monday after the U.S. July NAHB housing market index fell more than expected to a 2-year low. 

The U.S. July NAHB housing market index fell -12 to a 2-year low of 55, weaker than expectations of 65.

EUR/USD (^EURUSD) on Monday rose by +0.73%.  Higher European government bond yields Monday supported moderate gains in EUR/USD, as the 10-year German bund yield rose +8.2 bp to 1.215%.  Political turmoil in Italy remains a focus of the euro with the risk that Prime Minister Draghi may resign.  Prime Minister Draghi had offered his resignation last Thursday after Italy’s Five Star Movement boycotted a confidence vote in the Senate.  

USD/JPY (^USDJPY) on Monday fell -0.40%.   A weaker dollar Monday sparked short covering in the yen. Also, Monday's stock price reversal boosted safe-haven demand for the yen after stocks gave up an early advance and turned lower.  Trading activity in USD/JPY was muted, with markets in Japan closed Monday for the Marine Day holiday.

August gold (GCQ22) Monday rose by +6.60 (+0.39%), and September silver (SIU22) rose by +0.246 (+1.32%).  Precious metals Monday posted moderate gains.  A slump in the dollar Monday sparked a rally in metals prices.  Gold also garnered support Monday on increased demand as an inflation hedge after the U.S. 10-year breakeven inflation rate climbed to a 2-1/2 week high.  Higher global government bond yields Monday limited gains in 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 reported 580 new Covid infections on Saturday, the most in 8 weeks.  Close to 30 million people are under some form of movement restrictions in China as the government maintains its strict Covid-Zero strategy.  Also, Japan reported a record 110,680 new Covid infections Saturday.  In addition, the 7-day average of new U.S. Covid infections rose to a 6-week high of 135,409 on Sunday. 

• Stocks Rally on Reduced Fed Rate-Hike Concerns
• Dollar Falls Back on Strong Stocks and Lower T-Note Yields
• Stocks Rally as Inflation Expectations Fall
• Stocks Tumble on Weak Bank Earnings and Strong US PPI