The dollar index (DXY00) on Monday rose by +0.77% and posted a new 5-week high. A plunge in stocks Monday boosted the liquidity demand for the dollar. Also, weakness in the Chinese yuan gave the dollar a boost as central bank divergence is undercutting the yuan, which fell to a 23-month low against the dollar Monday after Chinese banks lowered their prime lending rates. In addition, expectations for the Fed to maintain its aggressive rate-hike path are boosting T-note yields and supporting the dollar.
Monday’s U.S. economic data supported the dollar after the July Chicago Fed national activity index unexpectedly rose +0.52 to 0.27, stronger than expectations of a decline to -0.25.
EUR/USD (^EURUSD) on Monday fell by -0.97% and sank to a nearly 20-year low. The euro Monday was under pressure from dollar strength and from concern that the ongoing energy crisis in Europe will throw the Eurozone economy into recession. European nat-gas prices Monday surged more than +13% to a 5-1/2 month high after Russia said it would stop gas flows through the Nord Stream pipeline for three days of maintenance on August 31, ramping up fears of a prolonged supply halt. German Bundesbank President Nagel warned Monday that Germany would face a recession if the energy situation escalates.
German Bundesbank President Nagel on Monday said the ECB should continue raising interest rates to combat inflation and that Germany’s inflation rate this autumn could hit 10%.Â
USD/JPY (^USDJPY) on Monday rose +0.34% and posted a 1-month high. Higher T-note yields Monday undercut the yen as the 10-year T-note climbed to a 1-month 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) Monday closed down -14.40 (-0.82%), and September silver (SIU22) closed down -0.191 (-1.00%). Gold and silver prices Monday fell to 3-week lows and closed moderately lower. A rally in the dollar index Monday to a 5-week high undercut metals prices. Gold prices were also weighed down Monday by rising global bond yields. In addition, metals prices were undercut on expectations that Fed Chair Powell at the Fed’s annual Jackson Hole symposium later this week will signal the Fed will maintain its aggressive rate-hike policy. Gold has some support as a store of value after Chinese banks Monday lowered their benchmark lending rates.
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