Dollar Gains as T-Note Yields Rise

The dollar index (DXY00) on Monday rose by +0.02%.  The dollar Monday climbed to a 20-year high and posted modest gains. Higher T-note yields Monday gave the dollar a boost after the 10-year T-note yield climbed to a 2-month high.  The dollar index Monday also had carry-over support from last Friday when Fed Chair Powell said that “restoring price stability will likely require maintaining a restrictive policy stance for some time.” In addition, an overnight plunge in U.S. stock indexes sparked some liquidity demand for the dollar.  However, the dollar Monday gave up nearly its entire advance as a rally in EUR/USD sparked long liquidation in the dollar.

Monday’s U.S. economic news was slightly bearish for the dollar.  The Aug Dallas Fed manufacturing outlook level of general business activity rose to -12.9 from -22.6 in July, slightly weaker than expectations of -12.7.

EUR/USD (^EURUSD) on Monday rose by +0.32%.  The euro Monday recovered from early losses and rose moderately as hawkish ECB comments pushed up German bund yields and strengthened the euro’s interest rate differentials.  The 10-year German bund yield climbed to a 2-month high Monday at 1.545%.  EUR/USD also garnered support from a plunge in European nat-gas prices, which temporarily eased concerns about an energy crisis.  European nat-gas prices sank -19% Monday after Germany said its gas storage is filling up faster than planned.

ECB Governing Council member Kazaks said the ECB needs to act forcefully and raise interest rates by at least 50 bp next month to bring inflation back under control.

ECB Governing Council member Rehn said the ECB must act forcefully to contain record inflation and keep expectations for future price growth anchored as the weak euro exacerbates a surge in energy costs.

USD/JPY (^USDJPY) on Monday rose by +0.81% to a 6-week high.  The yen retreated Monday on higher T-note yields and dovish comments from BOJ Governor Kuroda.  The 10-year T-note yield Monday climbed to a 2-month high of 3.127%. The yen remains under pressure on divergent central bank policies, with the Fed in the middle of a rate hike cycle while the BOJ maintains QE and record low-interest rates.

Comments from BOJ Governor Kuroda undercut the yen when he said the BOJ "has no choice other than continued monetary easing until wages and prices rise in a stable and sustainable manner."

October gold (GCV22) Monday closed down -0.10 (-0.01%), and September silver (SIU22) closed down -0.189 (-1.01%).  Gold and silver prices Monday fell to 1-month lows and closed lower.  The outlook for the Fed and ECB to aggressively raise interest rates lifted global bond yields Monday and weighed on metals prices after the 10-year T-note and 10-year German bund yields climbed to 2-month highs.  Gold prices recovered from their worst levels after stocks retreated, which boosted the safe-haven demand for gold.

• Stocks Fall as the Outlook for Tighter Fed Policy Saps Market Sentiment
• Dollar Climbs on Hawkish Fed
• Stocks Slip and Bond Yields Rise on Hawkish Powell
• Dollar Declines on Strength in Stocks and Lower T-Note Yields