Dollar Gains On Divergent Central Bank Policies

Rich Asplund - Barchart - 25 minutes ago

The dollar index (DXY00) on Tuesday rose +0.198 (+0.21%). EUR/USD (^EURUSD) fell -0.0021 (-0.18%). USD/JPY (^USDJPY) rose +0.31 (+0.27%). The dollar index on Tuesday rallied to a fresh 1-year high. Divergent central bank policies supported the dollar against G-10 currencies, with the Fed expected to taper QE before other global central banks. Weakness in stocks on Tuesday also boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) on Tuesday fell to a new 14-1/2 month low. The euro was under pressure Tuesday on dollar strength, and after the German Oct ZEW expectations of economic growth index fell -4.2 to a 19-month low of 22.3, weaker than expectations of 23.5. Losses were contained by signs of rising price pressures that are hawkish for ECB policy after the German Sep wholesale price index rose +13.2% y/y, the fastest pace of increase in 47 years.

USD/JPY (^USDJPY) on Tuesday moved moderately higher and posted a new 2-3/4 year high. Higher crude oil prices on Tuesday weighed on the yen, as did expectations for Fed tapering that boosted the dollar.

Tuesday’s U.S. economic data was bearish for the dollar after the U.S. Aug JOLTS job openings unexpectedly fell -659,000 to 10.439 million, showing a weaker labor market than expectations of an increase to 10.954 million.

Fed comments on Tuesday were hawkish for Fed policy and bullish for the dollar when Atlanta Fed President Bostic said that the price surges caused by supply-chain disruptions "are not transitory" and seem to be broadening to more parts of the economy.

December gold (GCZ21) on Tuesday closed up +3.60 (+0.21%), and Dec silver (SIZ21) closed down -0.151 (-0.67%). Precious metals on Tuesday settled mixed. Lower T-note yields on Tuesday supported gold prices, along with signs of rising global price pressures that fueled demand for gold as an inflation hedge. A rally in the dollar index on Tuesday to a new 1-year high weighed on silver and limiting gains in gold.

The dollar and gold have continued safe-haven support from concern the worldwide spread of the delta Covid variant will crimp the global economic recovery. However, the pandemic in the U.S. has improved after the 7-day average of new U.S. Covid infections on Monday fell to a 2-1/4 month low of 86,241.

Dollar Gains On Divergent Central Bank Policies (barchart.com)