Dollar Falls on Strength in Stocks and Euro

The dollar index (DXY00) on Tuesday fell by -0.61% and posted a 1-1/2 week low. A sharp rally in stocks Tuesday reduced the liquidity demand for the dollar.  Also, strength in the euro weighed on the dollar after EUR/USD climbed to a 1-1/2 week high Tuesday. 

Tuesday’s U.S. housing data was mixed for the dollar.  U.S. June housing starts unexpectedly fell -2.0% m/m to a 9-month low of 1.559 million, weaker than expectations of an increase to 1.580 million.  Conversely, June building permits, a proxy for future construction, fell -0.6% m/m to 1.685 million, stronger than expectations of 1.650 million.

EUR/USD (^EURUSD) on Tuesday rose by +0.85%  and climbed to a 1-1/2 week high.  A jump in European government bond yields Tuesday gave EUR/USD a boost.  The 10-year German bund yield rose to a 1-week high Tuesday of 1.308% on a report from Reuters that said that ECB policymakers might consider raising interest rates on Thursday by 50 bp instead of 25 bp because of the worsening inflation backdrop.  The euro also garnered support from Tuesday’s data that showed Eurozone May construction output rose +0.4% m/m, the first increase in 3 months.

USD/JPY (^USDJPY) on Tuesday rose by +0.06%.  USD/JPY recovered from early losses Tuesday and posted modest gains as higher T-note yields weighed on the yen.  Also, a rally in the S&P 500 to a 3-week high Tuesday reduced the safe-haven demand for the yen. 

August gold (GCQ22) Tuesday rose by +0.50 (+0.03%), and September silver (SIU22) fell by -0.127 (-0.67%).  Precious metals Tuesday settled mixed.  A weaker dollar Tuesday was supportive of metals prices.  Gains in gold were limited Tuesday by higher global bond yields. Also, a rally in the S&P 500 to a 3-week high Tuesday curbed the safe-haven demand for precious metals. Silver prices were under pressure on industrial demand concerns after BHP Group, the world’s largest miner, warned of an “overall slowing of global growth” due to the war in Ukraine and tighter global monetary policies.

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 699 new Covid infections on Monday, 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 5-month high of 136,234 on Sunday. 

• Stocks Climb on Hopes Consumer Spending Will Hold Up
• Dollar Retreats on Expectations for a Less Aggressive Fed
• The Dollar Index- The Bull Continues to Charge
• Stocks Rally on Reduced Fed Rate-Hike Concerns