Dollar Soars to a 20-Year High on Recession Fears
The dollar index (DXY00) on Tuesday rose by +1.361 (+1.29%). The dollar index Tuesday rallied sharply to a 20-year high. Concern the global economy may fall into recession boosted safe-haven demand for the dollar. Also, a slump in stocks Tuesday sparked liquidity demand for the dollar. In addition, weakness in EUR/USD, which fell to a 20-year low Tuesday, is supportive of the dollar. Finally, a plunge in (^GBPUSD) Tuesday to a 2-1/4 year low was supportive for the dollar. The British pound sank Tuesday after two of UK Prime Minister Johnson’s cabinet members resigned, a sign of political instability.
Tuesday’s U.S. economic data was bullish for the dollar after May factory orders rose +1.6% m/m, stronger than expectations of +0.5% m/m.
EUR/USD (^EURUSD) on Tuesday fell by -0.0162 (-1.55%). EUR/USD Tuesday tumbled to a 20-year low on concern the ECB will be slow to tighten monetary policy, which has weakened the euro’s interest rate differentials. EUR/USD also moved lower Tuesday on strength in the dollar, which weighed on the euro.
Tuesday’s Eurozone economic data was better-than-expected but gave little support to EUR/USD. The Eurozone Jun S&P composite PMI was revised slightly higher by +0.1 to 52.0 from the previously reported 51.9. Also, France May manufacturing production rose +0.8% m/m, stronger than expectations of +0.3% m/m.
USD/JPY (^USDJPY) on Tuesday rose by +0.14 (+0.10%). USD/JPY Tuesday rose slightly as strength in the dollar weighed on the yen. The yen was also under pressure Tuesday on weaker-than-expected Japanese economic data on wage growth and services activity that may prompt the BOJ to maintain QE and record-low interest rates, bearish factors for the yen.
The Japan Jun Jibun Bank services PMI was revised downward by -0.2 to 54.0 from the originally reported 54.2.
Japan May real cash earnings fell -1.8% y/y, weaker than expectations of -1.6% y/y and the biggest decline in 1-3/4 years.
August gold (GCQ22) Tuesday closed down -37.6 (-2.09%), and September silver (SIU22) closed down -0.546 (-2.78%). Precious metals Tuesday sold off sharply, with gold falling to a 6-1/2 month low and silver falling to a 2-year low. Tuesday’s rally in the dollar index to a 20-year high was bearish for metals prices. Gold prices also retreated after the Reserve Bank of Australia (RBA) Tuesday raised its key benchmark interest rate by 50 bp to 1.35%. Silver is also under pressure from a plunge in copper prices to a 19-month low Tuesday on concern a slowdown in the global economy will hurt demand for industrial metals.
The dollar and gold have continued safe-haven support from the negative impact of the worldwide spread of the omicron Covid variant on the global economic recovery. China has been slowly dropping Covid lockdowns, but elevated Covid cases may keep the country from fully reopening. China has launched mass testing for nine districts in Shanghai after detecting new Covid infections, and 66 new Covid infections were reported in Jiangsu province Tuesday, the second-biggest province for China's economic output. Also, the 7-day average of new U.S. Covid infections rose to a 3-1/2 week high of 119,644 last Friday.
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