The dollar index (DXY00) on Friday rose by +0.60%. The dollar index Friday extended Thursday’s gains up to a 5-week high. Expectations for the Fed to maintain its aggressive rate-hike path are boosting T-note yields and supporting the dollar. Also, weakness in the Chinese yuan is giving the dollar a boost as central bank divergence between the PBOC and Fed pushed the yuan down to a 1-3/4 year low Friday at 6.8188 yuan/USD. In addition, Friday’s stock slide has boosted the dollar's liquidity demand.
Hawkish Fed comments Friday from Richmond Fed President Barkin were bullish for the dollar when he said the Fed is "very seriously committed to returning inflation to our 2% target, and we’ll do what it takes to get there.” He added that he expects bond yields to rise as the Fed balance sheet shrinks.
EUR/USD (^EURUSD) on Friday fell by -0.49% and posted a 5-week low. Soaring German producer prices are bearish for EUR/USD after Friday’s data showed German July PPI rose a record +37.2% y/y. The euro is also under pressure on concern that the ongoing energy crisis in Europe will throw the Eurozone economy into recession. Losses in EUR/USD were limited after the 10-year German bund yield Friday rose to a 4-week high, strengthening the euro’s interest rate differentials.
German July PPI rose a record +37.2% y/y, stronger than expectations of +31.8% y/y.
USD/JPY (^USDJPY) on Friday rose +0.70%. The yen Friday fell for the fourth straight session and dropped to a 3-week low against the dollar. The yen was under pressure Friday from higher T-note yields after the 10-year T-note yield climbed to a 4-week high. Also, central bank divergence continues to undercut the yen with the Fed in the middle of a rate-hike cycle while the BOJ maintains QE and record-low interest rates.
October gold (GCV22) Friday closed down -8.10 (-0.46%), and September silver (SIU22) closed down -0.395 (-2.03%). Gold and silver prices Friday fell moderately and posted 3-week lows. Precious metals Friday declined for the fifth consecutive session. A rally in the dollar index Friday to a 5-week high undercut metals prices. Gold was also weighed down Friday by rising global bond yields. In addition, the ongoing liquidation of long gold positions by funds is bearish for gold prices after long gold positions in ETFs fell to a 5-1/2 month low Thursday. Losses in gold were limited Friday on increased demand for gold as an inflation hedge after German July PPI rose a record +37.2% y/y. Also, a slump in stocks boosted the safe-haven demand for precious metals.
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