Dollar Falls Slightly on Lower T-Note Yields
The dollar index (DXY00) on Tuesday fell back from a 2-1/2 month high and posted a small -0.06% loss. Lower T-note yields Tuesday weighed on the dollar. The dollar also moved lower after U.S. negotiators agreed to a tentative agreement to raise the debt ceiling, which puts a cap on federal spending that could slow economic growth. However, losses in the dollar were limited by hawkish Fed comments and the stronger-than-expected U.S. May consumer confidence report.
Tuesday’s U.S. economic news was mixed for the dollar. On the negative side, the May Dallas Fed manufacturing outlook level of general business activity unexpectedly fell -5.7 to a 3-year low of -29.1, weaker than expectations of an increase to -18.0. Conversely, the Conference Board’s U.S. May consumer confidence index fell -1.4 to 102.3, stronger than expectations of 99.0.
Tuesday’s comments from Richmond Fed President Barkin were hawkish for Fed policy and bullish for the dollar when he said, "However I look at it, the inflation rate is too high," and we need to bring it down by reducing demand.
EUR/USD (^EURUSD) on Tuesday rose by +0.17%. The euro Tuesday recovered from a 2-1/4 month low and moved moderately higher as a weaker dollar sparked short covering in the euro. EUR/USD Tuesday initially fell to a 2-1/4 month low after Spain's May CPI rose less than expected, which was dovish for ECB policy. Also, Eurozone May economic confidence index fell more than expected to a 6-month low, a bearish factor for the euro.
Spain May CPI (EU harmonized) eased to +2.9% y/y from 3.8% y/y in Apr, slower than expectations of +3.3% y/y and the smallest increase in 1-3/4 years.
The Eurozone May economic confidence index fell -2.5 to a 6-month low of 96.5, weaker than expectations of 98.8.
Eurozone Apr M3 money supply rose +1.9% y/y, weaker than expectations of +2.0% y/y and the smallest increase in 8-3/4 years.
USD/JPY (^USDJPY) on Tuesday fell by -0.49%. The yen on Tuesday recovered from a 6-1/4 month low against the dollar and rallied moderately. The yen moved higher after an unscheduled meeting Tuesday between Japan’s Ministry of Finance, the BOJ, and the Financial Services Agency sparked short covering in the yen. Also, Japan’s top currency official, Kanda, said the government would take action if needed if the yen continues to decline. The unscheduled meeting came after the yen softened beyond 140 per dollar.
Tuesday’s Japanese economic news was supportive for the yen after the Japan Apr jobless rate fell -0.2 to 2.6%, showing a stronger labor market than expectations of 2.7%.
June gold (GCM3) on Tuesday closed up +13.70 (+0.70%), and July silver (SIN23) closed down -0.121 (-0.52%). Precious metals Tuesday settled mixed. A weaker dollar and lower T-note yields Tuesday were bullish for metals prices. However, gains in metals were limited after U.S. lawmakers reached a tentative agreement to raise the debt ceiling, which sparked a temporary rally in stocks that reduced the safe-haven demand for precious metals. Funds have been adding to their long gold positions as a safe-haven from the political turmoil in the U.S. from the debt-ceiling impasse as long positions in gold-backed ETFs rose to a 6-1/4 month high Monday. Silver prices were also under pressure on concern China’s economic recovery was faltering, a bearish factor for industrial metals demand.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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