The dollar index (DXY00) on Monday rose by +0.69%.   The dollar Monday recovered from a 3-1/2 month low and posted moderate gains after hawkish Fed comments pushed T-note yields higher.  Also, the weakness in stocks Monday boosted liquidity demand for the dollar.

Monday’s U.S. economic news supported the dollar after the Nov Dallas Fed manufacturing activity unexpectedly rose +5.0 to -14.4, stronger than expectations of a decline to -21.0.

Fed comments Monday were hawkish for Fed policy and bullish for the dollar.  New York Fed President Williams said, "stronger demand for labor, stronger demand in the economy than I previously thought, and then somewhat higher underlying inflation, suggest a modestly higher rate path than I had forecast in September."

Also, St. Louis Fed President Bullard said the markets are underpricing the risk that the FOMC may be more aggressive than the markets expect, and that the Fed may have to keep interest rates higher through 2023 into 2024 as inflation remains "far too high."  In addition, Cleveland Fed President Mester said the Fed is "not near a pause" in its rate hikes, but "we have the opportunity to slow the pace of increases and evaluate the effects, given that we're beginning to move into restrictive territory."   

EUR/USD (^EURUSD) on Monday fell by -0.59%.  The euro Monday fell back from a 4-3/4 month high and posted moderate losses.  A recovery in the dollar Monday fueled long liquidation in the euro.  EUR/USD Monday initially rallied to a 4-3/4 month high on hawkish comments from ECB President Lagarde and ECB Governing Council member Knot. 

Eurozone Oct M3 money supply rose +5.1% y/y, weaker than expectations of +6.1% y/y and the smallest increase in 2-3/4 years. 

ECB President Lagarde said borrowing costs will continue to rise even as economic activity slows down as "we expect to raise rates further to the levels needed to ensure that inflation returns to the ECB's 2% medium-term target in a timely manner."

ECB Governing Council member Knot said it is a "bit of a joke" to talk about the ECB over-tightening now.  "To bring inflation back to target in the Eurozone, we will need a protracted period of time at which at least growth is below potential because otherwise, we will never get disinflation going."

USD/JPY (^USDJPY) on Monday fell -0.22%.  The yen Monday rallied to a 2-3/4 month high against the dollar as record Covid infections in China and nationwide protests against the country’s strict Covid Zero policies have boosted safe-haven demand for the yen from Japanese investors who may be looking to repatriate overseas assets. The yen fell back from its best levels Monday after T-note yield rose, which weighed on the yen.

December gold (GCZ2) on Monday closed down -11.70 (-0.78%), and December silver (SIZ22) closed down -0.515 (-2.40%).  Precious metals Monday fell moderately.  A stronger dollar Monday undercut metals prices.  Gold prices were also under pressure from higher global bond yields. In addition, hawkish comments from several Fed and ECB members weighed on metals prices when they said they would continue to raise interest rates to combat inflation.  Silver prices also fell on concern that Chinese demand for industrial metals will wane as record-high Covid infections in China prompt the government to expand pandemic lockdowns that will curb economic activity.

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