Dollar Rallies to a 20-Year High as T-Note Yields Climb

The dollar index (DXY00) on Thursday rose by +0.81%.  The dollar Thursday rallied to a new 20-year high.  Higher T-note yields Thursday supported the dollar. Also, divergent central bank policies are hammering the yen, which slumped to a new 24-year low against the dollar Thursday.  The dollar extended its gains Thursday on better-than-expected U.S. economic news on weekly jobless claims and the Aug ISM manufacturing index.

Thursday’s U.S. economic reports were bullish for the dollar.  Weekly initial unemployment claims unexpectedly fell -5,000 to a 2-month low of 232,000, showing a stronger labor market than expectations of an increase to 248,000.  Also, Q2 nonfarm productivity was revised upward to -4.1% from the previously reported -4.6%, stronger than expectations of -4.3%.  In addition, the Aug ISM manufacturing index was unchanged at 52.8, stronger than expectations of a decline to 51.9. 

EUR/USD (^EURUSD) on Thursday fell by -1.03%.  EUR/US Thursday dropped to a 1-week low and is just above last Tuesday’s 20-year low.  A stronger dollar Thursday weighed on the euro.  Also, concerns that record inflation in the Eurozone will force the ECB to aggressively tighten monetary policy that will derail economic growth are weighing on EUR/USD.  The euro also fell back after Thursday’s economic news showed a gauge of Eurozone manufacturing activity was revised lower.   

Eurozone economic news today was mixed for EUR/USD.  On the negative side, the Eurozone Aug S&P Global manufacturing PMI was revised lower by -0.1 to 49.6 from the previously reported 49.7, the steepest pace of contraction in 2 years.  Conversely, the Eurozone July unemployment rate fell -0.1 to a record low 6.6%, right on expectations.  Also, German July retail sales unexpectedly rose +1.9% m/m, stronger than expectations of -0.1% m/m.

USD/JPY (^USDJPY) on Thursday rose by +0.83%.  The yen Thursday tumbled to a new 24-year low against the dollar as a divergence of monetary policies between the Fed and BOJ continues to weigh on the yen.  Also, higher T-note yields Thursday were bearish for the yen after the 10-year T-note yield rose to a 2-1/4 month high.

Thursday’s Japanese economic news was mixed for the yen.  On the bearish side, Japan Q2 capital spending ex-software rose +3.5% y/y, weaker than expectations of +5.1% y/y.  Also, Japan Q2 company sales rose +7.2% y/y, weaker than expectations of +11.6% y/y.  On the positive side, the Japan Aug Jibun Bank manufacturing PMI was revised upward by +0.5 to 51.5 from the previously reported 51.0.

October gold (GCV22) Thursday closed down -17.30 (-1.01%), and September silver (SIU22) closed down -0.211 (-1.19%).  Precious metals Thursday fell for the fifth consecutive session, with gold posting a 6-week low and silver falling to a 2-year low.  A surge in the dollar Thursday to a 20-year high weighed metals prices, along with the outlook for the Fed and ECB to aggressively tighten their monetary policies.  Also, higher global bond yields Thursday undercut gold prices.  In addition, continued liquidation from funds weighs on gold prices after long gold positions in ETFs fell to a 6-1/2 month low Wednesday. Silver prices were also under pressure on industrial metals demand concerns after China Thursday locked down Chengdu, the capital of Sichuan province with 21 million people, to contain a Covid outbreak. 

• Growth Concerns and Rising Bond Yields Hammer Stocks
• Dollar Slightly Lower on Weak U.S. Labor News
• Stocks Mixed as Market Sentiment Remains Cautious
• Dollar Slips on Strength in EUR/USD