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Dollar Falls as Yen and Yuan Strengthen

Barchart - Mon Sep 11, 3:01PM CDT

The dollar index (DXY00) Monday fell by -0.51% and posted a four-session low.  Strength in the yen and yuan on Monday undercut the dollar.  The yen rallied to a 1-week high against the dollar Monday after BOJ Governor Ueda said Japan’s negative interest rate policy could end by the end of the year.  Also, the Chinese yuan strengthened against the dollar on better-than-expected Chinese credit growth news and after the PBOC said it would correct one-sided moves in the foreign exchange market whenever needed.  In addition, Monday’s rally in stocks curbed the liquidity demand for the dollar.

EUR/USD (^EURUSD) Monday rose by +0.42%.  A weaker dollar on Monday was supportive of the euro.  Gains in EUR/USD were limited on weaker-than-expected economic news from Italy and after the European Commission cut its 2023 Eurozone GDP forecast, a dovish factor for ECB policy.  The markets are discounting the odds at 38% for a +25 bp rate hike at this Thursday’s ECB meeting.

The European Commission cut its 2023 Eurozone GDP forecast to +0.8% from an earlier projection of +1.1%. It also cut its 2023 Eurozone inflation forecast to +5.6% from a previous forecast of +5.8%.

Italy’s July industrial production fell -0.7% m/m, weaker than expectations of -0.3% m/m.

USD/JPY (^USDJPY) Monday fell by -0.84%.  The yen on Monday jumped to a 1-week high against the dollar on hawkish comments from BOJ Governor Ueda, who said an end to negative interest rates is possible by year-end.  Ueda’s comments sent the 10-year JGB bond yield soaring to a 9-1/2 year high of 0.711%, strengthening the yen’s interest rate differentials.

BOJ Governor Ueda told the Yomiuri newspaper that the BOJ will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.

A negative factor for the yen was Monday’s Japanese economic news that showed Aug machine tool orders fell -17.6 % y/y, the eighth consecutive month orders have declined.

October gold (GCV3) Monday closed +4.60 (+0.24%), and December silver (SIZ23) closed +0.209 (+0.90%). Precious metals prices on Monday posted moderate gains.  A weaker dollar on Monday boosted precious metals prices.  Also, reduced expectations for an interest rate increase by the ECB this week supported gold as the markets have priced in only a 38% chance the ECB will raise interest rates by 25 bp this Thursday. 

Gains in metals on Monday were limited by negative factors, including Monday’s downward revision by the European Commission to its 2023 Eurozone GDP forecast to +0.8% from an earlier projection of +1.1%, which signals reduced demand for industrial metals. Also, the continued liquidation of gold holdings by funds is bearish for gold after long gold holdings in ETFs fell to a 3-1/3 year low last Friday.

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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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