Dollar Weighed Down By Weak U.S. Economic News

Rich Asplund - Barchart - 35 minutes ago

The dollar index (DXY00) on Tuesday fell by -0.40%. The dollar index Tuesday fell back from a 1-1/4 month high and posted moderate losses. The dollar was undercut by weaker-than-expected U.S. economic news, including July new home sales and the Aug U.S. PMI report. The dollar index Tuesday initially rallied to a 1-1/4 month high on strength in T-note yields after the 10-year T-note yield rose to a 1-month high of 3.074%.

Monday’s U.S. economic news was bearish for the dollar. The Aug U.S. S&P Global manufacturing PMI fell -0.9 to a 2-year low of 51.3, weaker than expectations of 51.8. Also, July new home sales fell -12.6% to a 6-1/2 year low of 511,000, weaker than expectations of 575,000. In addition, the Aug Richmond Fed manufacturing index fell to -8, weaker than expectations of -2.

EUR/USD (^EURUSD) on Tuesday rose by +0.22%. The euro Tuesday recovered from a 20-year low against the dollar and posted moderate gains. Dollar weakness Tuesday sparked short covering in the euro after U.S. economic news disappointed. EUR/USD on Tuesday initially fell to a 20-year low on weak Eurozone economic news and concern that the ongoing energy crisis in Europe will throw the Eurozone economy into recession. An unexpected rebound in the Eurozone Aug consumer confidence indicator was bullish for EUR/USD.

Electricity rates rose to records Tuesday in the UK, France, Germany, Italy, and the Nordic region. German electricity rates rose to a record high of more than 700 euros per megawatt Monday, 14 times the seasonal average over the past five years. Russia is halting gas flows through the Nord Stream pipeline to Germany for three days of maintenance starting Aug 31, and there is concern the supply link won’t return even after the maintenance work is completed.

The Eurozone Aug S&P Global manufacturing PMI fell -0.1to a 2-year low of 49.7, although that was stronger than expectations of 49.0. The Eurozone Aug S&P Global composite PMI fell -0.7 to a 1-1/2 year low of 49.2, although that was stronger than expectations of 49.0.

The Eurozone Aug consumer confidence indicator unexpectedly rose +2.1 to -24.9, stronger than expectations of a decline to -28.0.

USD/JPY (^USDJPY) on Tuesday fell by -0.48%. The yen Tuesday recovered from a 1-month low and posted moderate gains. The yen strengthened Tuesday on dollar weakness along with a -1.19% slump in the Nikkei Stock Index, which boosted safe-haven demand for the yen. However, the upside in the yen was contained by Japanese economic concerns after the Japan Aug Jibun Bank manufacturing PMI fell -1.1 to a 1-1/2 year low of 51.0.

October gold (GCV22) Tuesday closed up +12.90 (+0.74%), and September silver (SIU22) closed up +0.148 (+0.78%). Gold and silver prices Tuesday posted moderate gains. Dollar weakness Tuesday was supportive of metals prices. Gains in gold Tuesday were limited by higher global bond yields. Gold prices were also undercut by continued long liquidation pressure after long gold positions in ETFs fell to a 5-3/4 month low Monday.

Dollar Weighed Down By Weak U.S. Economic News (barchart.com)