Dollar Tumbles as Stocks Surge and T-Note Yields Fall
The dollar index (DXY00) on Tuesday fell sharply by -1.46% and posted a 2-week low. A rally in the S&P 500 Tuesday to a 1-1/2 week high undercut liquidity demand for the dollar. The dollar was also under pressure after Tuesday’s weaker-than-expected Aug JOLTS job openings report pushed T-note yields lower and bolstered speculation that the Fed may be closer to ending its aggressive rate hike campaign.
Aug JOLTS job openings fell -1,186,000 to a 14-month low of 10.053 million, showing a weaker labor market than expectations of 11.088 million.
Fed comments Tuesday were hawkish for monetary policy and bullish for the dollar. Fed Governor Jefferson said inflation was "elevated" and "restoring price stability may take some time and will likely entail a period of below-trend growth." Also, San Francisco Fed President Daly said the Fed "must follow through on its commitments to bring inflation down, which does mean further rate hikes and holding those restrictive policies in place until we are truly done with bringing inflation back to target."
EUR/USD (^EURUSD) on Tuesday rose by +1.65%. EUR/USD Tuesday rallied sharply to a 2-week high. Weakness in the dollar Tuesday sparked short covering in the euro. Also, a plunge in European nat-gas prices Tuesday to a 2-1/4 month low has eased concerns about an energy crisis in the Eurozone and gave EUR/USD a boost. The euro also found support after Tuesday’s news that the Eurozone Aug producer prices rose at a record pace, which is hawkish for ECB policy.
ECB Governing Council member Villeroy de Galhau said the ECB should continue raising interest rates by large increments at its meetings in October and December before reassessing and possibly shifting to a slower pace.
The Eurozone Aug PPI rose a record +43.3% y/y, stronger than expectations of +43.2% y/y.
USD/JPY (^USDJPY) on Tuesday fell by -0.37%. The yen Tuesday rallied moderately and posted a 1-week high against the dollar. Lower T-note yields Tuesday sparked short-covering in the yen. Gains in the yen were contained after Japan’s Nikkei Stock Index rallied sharply to a 1-1/2 week high and curbed safe-haven demand for the yen.
December gold (GCZ22) Tuesday closed up +28.50 (+1.67%), and December silver (SIZ22) closed up +0.510 (+2.48%). Gold and silver Tuesday posted moderate gains, with gold climbing to a 3-week high and silver climbing to a 1-1/2 month high. A slump in the dollar index Tuesday to a 2-week low was bullish for metals prices. Also, the smaller-than-expected Australian interest rate hike Tuesday fueled a rally in global bond markets that supports gold prices. In addition, gold has increased demand as an inflation hedge after Tuesday’s economic news showed Eurozone Aug producer prices rose at a record pace of +43.3% y/y. Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/4 year low last Friday.
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