Dollar Falls on Lower T-Note Yields

The dollar index (DXY00) on Monday fell by -0.45 (-0.43%) and posted a new 1-month low.

The dollar was undercut mainly by a -6 bp drop in the 10-year T-note yield to 2.58%.  The 10-year T-note yield fell due to a -5 bp drop in the 10-year inflation expectations rate to 2.51%, sparked in part by a -4.8% sell-off in crude oil prices.

The dollar Monday also continued to suffer from ideas that last week’s news of a technical U.S. recession (i.e., the back-to-back quarterly GDP declines in the first half of 2022) will force the Fed to curb its rate-hike ambitions. 

The dollar Monday saw underlying support after the U.S. ISM manufacturing report showed some resiliency for the U.S. manufacturing sector.  Monday’s July U.S. ISM manufacturing index fell by -0.2 points to a 2-year low of 52.8, which was stronger than expectations of a -1.0 point decline to 52.0.  The July prices-paid sub-index fell sharply by -18.5 points to 60.0, much weaker than expectations of a decline to 74.3.  The July new orders sub-index fell by -1.2 points to 48.0, but the July ISM employment sub-index rose by +2.6 points to 49.9.

In a supportive factor for the dollar, Minneapolis Fed President Kashkari’s (non-FOMC voter) on Sunday said that the Fed is committed to doing what is necessary to slow inflation to its 2% target.

EUR/USD (^EURUSD) on Monday rose by +0.0031 (+0.30%) mainly due to dollar weakness.  USD/JPY (^USDJPY) Monday fell by -1.16% and posted a new 1-1/2 month low.  The Japanese yen saw some capital repatriation demand from Japanese investors as U.S.-Chinese tensions rose over a possible visit by U.S. House Speaker Pelosi to Taiwan on Tuesday or Wednesday.

October gold (GCV22) Monday rose by +6.3 (+0.34%), and September silver (SIU22) rose by +0.165 (+0.82%).  Precious metals on Monday rallied on weakness in the dollar and on some flight-to-quality over heightened U.S.-Chinese tensions over Taiwan.  Silver rallied despite the bearish factor of an unexpected -1.2 point decline in China’s July manufacturing PMI report to 49.0.

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