The dollar index (DXY00) on Tuesday showed a small decline of -0.06% on reduced liquidity demand as the stock market fell. The dollar was unable to get much support from interest rate differentials despite the +3 bp rise in the 10-year T-note yield.
The dollar has sagged since last Friday’s +0.88% rally, which occurred after the stronger-than-expected U.S. payroll report of +528,000 suggested that the Fed will need to continue to tighten monetary policy aggressively.
The markets are looking ahead to Wednesday’s U.S. CPI report for indications of whether inflation is peaking. A strong CPI report on Wednesday could help solidify expectations for a +75 bp rate hike at the next FOMC meeting in September, which were sparked by last Friday’s much stronger-than-expected U.S. July payroll report of +528,000 (versus expectations of +250,000).
The consensus is for Wednesday’s July CPI report to show an increase of +0.2% m/m and +8.7% y/y, down from June’s report of +1.3% m/m and +9.1% y /y. The July core CPI is expected at +0.5% m/m and +6.1%, compared with June’s report of +0.7% m/m and +5.9% y/y. The CPI in June rose to a 40-year high of +9.1%, but the core CPI of 5.9% is currently 0.6 points below the 40-year peak of +6.5% posted earlier this year in March.
EUR/USD (^EURUSD) on Tuesday rose +0.24%, mainly due to dollar weakness. USD/JPY (^USDJPY) on Tuesday rose +0.14%, with Japanese investors nervously watching continued military drills around Taiwan.
October gold (GCV22) Tuesday rallied by +7.20 (+0.40%), and September silver (SIU22) fell by -0.132 (-0.64%). Gold saw support from continued Taiwan tensions and technical buying, with Oct gold edging to a new 1-month high. Silver on Tuesday saw some long liquidation pressure after Monday’s sharp +3.89% rally to a 5-week high.
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