Dollar Gains as Euro Falls on Concern about a Eurozone Energy Crisis

The dollar index (DXY00) on Tuesday rose by +0.66%.   The dollar on Tuesday moved moderately higher as a slump in stocks boosted the liquidity demand for the dollar.  Also, concern that an energy crisis in Europe will cause a recession in the Eurozone weighed on the euro.   

Tuesday’s U.S. economic data was weaker than expected and bearish for the dollar.   U.S. June new home sales fell -8.1% m/m to a 2-year low of 590,000, weaker than expectations of 655,000.  Also, the Conference Board’s U.S. July consumer confidence index fell -2.7 to a 17-month low of 95.7, weaker than expectations of 97.0.

EUR/USD (^EURUSD) on Tuesday fell by -0.97% and posted a 1-week low. EUR/USD was under pressure Tuesday on concern that an energy crisis in Europe could spark a recession after Russia’s Gazprom PJSC said it would further curb gas flows to Europe through the Nord Stream pipeline to only around 20% of normal capacity from Wednesday. 

Comments on Tuesday from ECB Governing Council member de Cos were bearish for EUR/USD when he said, “economic activity in the Eurozone is slowing, weighed down by the war in Ukraine,” and inflation excluding energy and food “will remain at very high levels until the end of 2022.”

USD/JPY (^USDJPY) on Tuesday rose by +0.06%.  USD/JPY Tuesday recovered from early losses and posted modest gains after the 10-year T-note yield rebounded from a 2-month low, which weakened the yen.  The yen on Tuesday initially moved higher after the Japanese government raised its monthly economic assessment in July for the first time in three months. 

The BOJ’s June policy meeting minutes said monetary easing must be in place until wages rise and that the BOJ will not hesitate to add easing if needed.  The BOJ also said a rapidly weakening yen has a negative impact on the economy and that upward interest-rate pressure from abroad is expected to continue.

The Japanese government Tuesday raised its monthly economic assessment in July for the first time in three months, saying the economy is picking up moderately as consumption picked up despite a surge in Covid cases.

Japan June PPI services prices rose +2.0% y/y, right on expectations and the biggest increase in more than 2 years.

August gold (GCQ22) Tuesday fell by -1.40 (-0.08%), and September silver (SIU22) rose by +0.207 (+1.13%).  Precious metals on Tuesday settled mixed.  A stronger dollar Tuesday was bearish for metals prices.  Expectations for the Fed to raise interest rates by +75 bp at the Tue/Wed FOMC meeting are negative for metals prices.  Ongoing fund liquidation of long gold positions continues to bearish for gold prices as long gold positions in ETFs have dropped for 19 consecutive days to a 4-1/2 month low Monday.  Losses in gold were limited Tuesday by a slide in stocks that boosted safe-haven demand for precious metals.  Also, lower global bond yields Tuesday were supportive of gold. 

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.  Close to 30 million people are under some form of movement restrictions in China as the government maintains its strict Covid-Zero strategy.

• Stocks Fall on Signs Higher Inflation is Curbing Consumer Spending
• Stocks Mixed Ahead of Big Tech Earnings and FOMC Meeting
• Dollar Retreats on a Sharp Drop in T-Note Yields
• Stocks See Downward Pressure from Weakness in Technology Stocks