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The dollar index fell by -0.50% on Monday back from a 1-1/2 month high and posted moderate losses. Lower Treasury yields weighed on the dollar. Meanwhile, the Wall Street rally was a significant factor that reduced the liquidity demand for the dollar.
US economic news was mixed for the dollar. On the negative side, the Feb Dallas Fed manufacturing outlook level of general business activity fell -5.1 to -13.5, weaker than expectations of -9.3.
January’s capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly rose +0.8% m/m, stronger than expectations of no change and the biggest increase in 5 months. Also, Jan pending home sales rose +8.1% m/m, stronger than expectations of +1.0% m/m and the biggest increase in 2-1/2 years.
The EUR/USD pair rose by +0.56%. The euro recovered from a 1-1/2 month low and rallied moderately. Hawkish comments from ECB President Lagarde gave EUR/USD a boost when she said we’ll hike rates by 50 bp at next month’s ECB meeting and “we’ll hike more if needed to return inflation 2%.”
Easing energy crisis concerns supported EUR/USD after European nat-gas prices fell to a 1-1/2 year low. The euro initially moved lower on weaker-than-expected Eurozone economic news on Feb economic confidence and Jan M3 money supply.
ECB President Lagarde said, “there’s every reason to believe that we’ll do another 50 bp rate hike in March,” and “we’ll hike more if needed to return inflation to 2%.”
Eurozone Feb economic confidence unexpectedly fell -0.1 to 99.7, weaker than expectations of an increase to 101.0.
Eurozone Jan M3 money supply rose +3.5% y/y, weaker than expectations of +3.9% y/y and the slowest pace of increase in 8-3/4 years.
USD/JPY (^USDJPY) on Monday fell by -0.19%. The yen Monday recovered from a 2-1/4 month low against the dollar and moved higher as weaker T-notes yields sparked short-covering in the yen. The yen Monday initially dropped to a 1-1/4 month low on comments from Bank of Japan Governor nominee Ueda who said the BOJ’s current stimulus outweighs its side effects and that underlying inflation needs to show a major shift to change the course of monetary policy.
April gold (GCJ3) on Monday closed up +7.80 (+0.43%), and March silver (SIH23) closed down -0.140 (-1.67%). Precious metals Monday settled mixed, with silver dropping to a 3-1/2 month low. A weaker dollar Monday was supportive of metals prices. Also, lower T-note yields Monday were bullish for precious metals. However, silver prices were undercut on industrial demand concerns in China as recent data shows property sales in China continued to plunge in the first three weeks of this month, and Chinese car sales continue to lag. A bearish factor for gold prices is the continued liquidation of gold holdings in ETFs after gold holdings fell to a new 2-3/4 year low last Friday.
More Forex News from Barchart
Stocks Climb on Increased M&A Activity and Lower Bond Yields
The Dollar Index At A Critical Level
Aussie Dollar: A Currency with Roots to its Harvest Season
Dollar Rallies as U.S. Economic Strength Keeps Fed Hawkish
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
