Dollar Slightly Lower on Reduced Liquidity Demand

The dollar index (DXY00) on Tuesday fell by -0.05%.  The dollar index Tuesday fell back from a 2-1/2 week high and posted modest losses.  An early rally in the S&P 500 Tuesday to a 3-3/4 month high curbed liquidity demand for the dollar.  However, the dollar recovered nearly all of its losses after stocks gave up their gains and traded mixed.  Higher T-note yields Tuesday were also supportive of the dollar.

U.S. economic data Tuesday was mixed for the dollar.  On the negative side, July housing starts fell -9.6% m/m to a 17-month low of 1.446 million, weaker than expectations of 1.527 million.  Conversely, July building permits, a proxy for future construction, fell -1.3% m/m to 1.674 million, stronger than expectations of 1.640 million. Also, July manufacturing production rose +0.7% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 4 months.

EUR/USD (^EURUSD) on Tuesday rose by +0.04%.  The euro Tuesday rebounded from a 2-1/2 week low and posted modest gains.  Dollar weakness Tuesday sparked short covering in EUR/USD.  The euro Tuesday initially fell to a 2-1/2 week low after a gauge of German investor confidence to a 13-year low.   Also, concerns that an energy crisis could send the EU into recession are undercutting the euro after European nat-gas prices Tuesday rallied to a 5-1/2 month high. Energy prices in Europe have been soaring after Russia cut gas supplies to Europe, slamming the region’s economy.

The German Aug ZEW survey expectations of economic growth unexpectedly fell -1.5 to a 13-year low of -55.3, weaker than expectations of an increase to -52.7.

USD/JPY (^USDJPY) on Tuesday rose +0.66%.  Higher T-note yields Tuesday undercut the yen.  Also, a rally in Japan’s Nikkei Stock Index Tuesday to a 7-1/2 month high reduced the safe-haven demand for the yen. Weaker-than-expected Japanese economic data was bearish for the yen after the Japan June tertiary industry activity index unexpectedly fell -0.2% m/m, weaker than expectations of +0.4% m/m.

October gold (GCV22) on Tuesday closed down -8.50 (-0.48%), and September silver (SIU22) closed down -0.187 (-0.92%).  Gold and silver Tuesday fell to 1-week lows and closed moderately lower.  A rally in the dollar index to a 2-1/2 week high Tuesday undercut metals prices, although the dollar fell back and closed little changed.  Higher global bond yields Tuesday also weighed on gold prices.  In addition, the ongoing liquidation of long gold positions by funds undercut gold prices after long gold positions in ETFs fell to a 5-1/2 month low Monday.

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