Dollar Up Slightly on Weak Stocks and Higher T-Note Yields
The dollar index (DXY00) on Tuesday rose +0.047 (+0.05%). The dollar on Tuesday extended Monday’s advance up to a new 2-week high. Weakness in stocks Tuesday prompted increased liquidity demand for the dollar. Also, higher T-note yields Tuesday benefited the dollar’s interest rate differentials. The dollar also has support from expectations for the FOMC on Wednesday to announce their intentions to raise interest rates as soon as March.
EUR/USD (^EURUSD) on Tuesday fell -0.0028 (-0.25%). EUR/USD on Tuesday tumbled to a 1-month low.
Rising geopolitical tensions in Ukraine weighed on the euro after the U.S. late Monday announced that 8,500 troops were put on alert for deployment in eastern Europe to bolster NATO forces. Dovish comments Tuesday from ECB chief economist Lane weighed on EUR/USD when he said that he finds it "less likely to think about a scenario where inflation is persistently, significantly above 2%, which would require a serious tightening." A positive factor for EUR/USD was Tuesday’s news that the German Jan IFO business climate index unexpectedly rose +0.9 to 95.7, stronger than expectations of a decline to 94.5.
USD/JPY (^USDJPY) on Tuesday fell -0.03 (-0.03%). USD/JPY on Tuesday posted modest losses as the yen strengthened on safe-haven demand after the Nikkei Stock Index sank to a 1-year low. However, gains in the yen were limited after BOJ Governor Kuroda said Tuesday that the BOJ needs to continue with monetary easing as Japan is “very far” from reaching its 2% inflation goal.
Tuesday’s U.S. economic data was mixed for the dollar. On the positive side, the Nov S&P CoreLogic composite-20 home price index rose +1.2% m/m and +18.3% y/y, stronger than expectations of +0.9% m/m and +18.0% y/y. Also, the Conference Board U.S. Jan consumer confidence index fell -1.4 to 113.8, stronger than expectations for a decline to 111.2. On the negative side, the Jan Richmond Fed manufacturing survey fell -8 to a 4-month low of 8, weaker than expectations of 14.
February gold (GCG22) on Tuesday closed up +10.80 (+0.59%), and March silver (SIH22) closed up +0.096 (+0.40%). Precious metals on Tuesday recovered from early losses closed moderately higher. Weakness in stocks Tuesday, along with heightened tensions in Ukraine, boosted safe-haven demand for precious metals. Gains in metals prices were limited Tuesday by dollar strength after the dollar index rallied to a 2-week high.
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
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