The dollar index (DXY00) on Tuesday rose by +0.251 (+0.24%). The dollar Tuesday posted moderate gains and is just below Monday’s 19-year high. Hawkish Fed comments Tuesday underpinned the dollar. Also, short-covering ahead of Wednesday’s U.S. consumer price data boosted the dollar. A rally in stocks Tuesday and lower T-note yields limited gains in the dollar.
Hawkish Fed comments Tuesday were bullish for the dollar. Fed Governor Waller said the strong U.S. economy can take higher interest rates as "we have a labor market that's so hot, so overstimulated, that it's a market where you can pull back a lot of demand for labor, and it would actually be a good thing." Also, Cleveland Fed President Mester said the Fed has to raise interest rates at a pace that will cool prices, and she backs hiking rates by 50 bp at the next two FOMC meetings. In addition, New York Fed President Williams said the Fed "will move expeditiously in bringing the federal funds rate back to more normal levels this year," and he sees inflation easing closer to the 2% Fed goal in 2024.
EUR/USD (^EURUSD) on Tuesday fell by -0.0026 (-0.25%). EUR/USD Tuesday fell moderately on concern the EU may boost deficit spending to fund rebuilding in Ukraine. An EU official on Tuesday said that the EU is considering the issuance of joint debt to finance Ukraine’s long-term reconstruction, which may end up costing hundreds of billions of euros. Better-than-expected Eurozone economic data Tuesday on German investor confidence and Italian industrial production limited losses in EUR/USD.
The German May ZEW expectations of economic growth index unexpectedly rose +6.7 to -34.3, stronger than expectations of a decline to -43.5.
Italy’s Mar industrial production was unch m/m, stronger than expectations of -1.5% m/m.
USD/JPY (^USDJPY) on Tuesday rose by +0.10 (+0.08%). USD/JPY Tuesday rose slightly and remained just below Monday’s 20-year high. Dovish BOJ comments Tuesday undercut the yen after BOJ Executive Director Uchida said that Japan’s economy is still in the process of recovery from the pandemic and needs support from monetary easing. Gains in USD/JPY were limited as lower T-note yields strengthened the yen. Also, better-than-expected data Tuesday on Japan Mar household spending was bullish for the yen.
Japan Mar household spending fell -2.3% y/y, the biggest decline in 7 months but stronger than expectations of -3.3% y/y.
June gold (GCM22) Tuesday closed down -17.60 (-0.95%), and July silver (SIN22) closed down -0.392 (-1.80%). Gold and silver prices Tuesday settled moderately lower, with gold dropping to a 3-month low and silver prices falling to a 9-1/2 month low. Strength in the dollar Tuesday weighed on metals prices. A rebound in stocks Tuesday also reduced the safe-haven demand for precious metals. Silver prices also retreated Tuesday as the ongoing pandemic lockdowns in China are curbing economic activity and weighing on the country’s 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 recently reported that new Covid infections have spread to 26 of 31 mainland provinces, up from 12 at the start of March. Also, the 7-day average of new U.S. Covid infections rose to a 2-1/2 month high of 75,618 on Monday.
https://www.barchart.com/story/news/8300514/dollar-remains-firm-on-hawkish-fed-comments
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