Dollar Retreats on a Sharp Drop in T-Note Yields

The dollar index (DXY00) on Friday fell by -0.20% and posted a 2-1/2 week low. A sharp drop in the 10-year T-note yield Friday to an 8-week low weighed on the dollar.  Also, strength in the yen undercut the dollar after USD/JPY slid to a 2-week low.  The dollar recovered from its worst levels Friday after stocks fell, which boosted liquidity demand for the dollar.

Friday’s U.S. economic data was slightly supportive for the dollar after the July U.S. S&P Global manufacturing PMI fell -0.4 to a 2-year low of 52.3.  However, that was stronger than expectations of 52.0.

EUR/USD (^EURUSD) on Friday fell by -0.24%.  Signs of a slowdown in economic activity in the Eurozone weighed on EUR/USD Friday after the Eurozone July S&P Global manufacturing PMI fell to a 2-year low.  Also, the Bundesbank warned that worries about Russian gas "are weighing on the outlook" for German growth.

The Eurozone July S&P Global manufacturing PMI fell -2.5 to a 2-year low of 49.6, weaker than expectations of 51.0.  Also, the Eurozone July S&P Global composite PMI fell -2.6 to a 17-month low of 49.4, weaker than expectations of 51.0.

In its monthly report Friday, the Bundesbank said "the inflation rate is likely to remain high in the coming months," and the worry about Russian gas "is weighing on the outlook" for German growth.

USD/JPY (^USDJPY) on Friday fell by -0.90%.  The yen Friday rallied to a 2-week high today on a decline in the 10-year T-note yield to an 8-week low.  Also, Friday’s data that showed a bigger than expected increase in Japanese consumer prices is hawkish for BOJ policy and sparked short-covering in the yen.

Japan’s June national CPI ex-fresh food & energy rose +1.0% y/y, stronger than expectations of +0.9% y/y and the biggest increase in 6-1/2 years.

The Japan July Jibun Bank manufacturing PMI fell -0.5 to a 10-month low of 52.2.

August gold (GCQ22) Friday rose by +14.00 (+0.82%), and September silver (SIU22) fell by -0.102 (-0.54%).  Precious metals Friday settled mixed, with gold prices climbing to a 1-week high.  A slump in the dollar index Friday to a 2-1/2 week low was bullish for metals.  Gold also rose Friday on a decline in global bond yields.  In addition, gold found support on increased demand as an inflation hedge after the Bundesbank Friday said "the inflation rate is likely to remain high in the coming months."  Also, the Japan June national CPI ex-fresh food & energy rose +1.0% y/y, stronger than expectations of +0.9% y/y and the biggest increase in 6-1/2 years. 

Silver prices Friday moved lower on signs of weakness in industrial demand after Friday’s data showed a slowdown in global manufacturing activity.  Ongoing fund liquidation of long gold positions continues to be bearish for gold prices as long gold positions in ETFs have dropped for 17 consecutive days to a 4-1/2 month low Thursday. 

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 935 new Covid infections on Tuesday, 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. 

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