The dollar index (DXY00) on Monday was little changed. The dollar Monday saw support from safe-haven demand after Israel declared war on Hamas. However, the dollar gave up most of its advance after stocks recovered from early losses and moved higher, reducing the liquidity demand for the dollar. Also, dovish comments from Fed Vice Chair Jefferson and Dallas Fed President Logan weighed on the dollar when they said the recent jump in long-term Treasury yields may mean less need for the Fed to raise interest rates again.
Fed Vice Chair Jefferson said policymakers are "in a position to proceed carefully in assessing the extent of any additional policy firming that may be necessary," as the recent increase in Treasury yields acts as a potential further restraint on the economy.
Dallas Fed President Logan believes the recent jump in long-term Treasury yields may mean less need for the Fed to raise interest rates again, saying, "Higher term premiums result in higher interest rates for the same setting of the fed funds rate, all else equal. Thus, if premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening."
EUR/USD (^EURUSD) on Monday fell by -0.16%. Strength in the dollar on Monday weighed on the euro. Losses in EUR/USD were limited by hawkish comments from ECB Vice President Guindos, who said interest rates are likely to stay at their current levels for some time.
Monday’s Eurozone economic news was mixed for the euro. On the negative side, German Aug industrial production fell -0.2% m/m, slightly weaker than expectations of -0.1% m/m. Conversely, Eurozone Oct Sentix investor confidence fell -0.4 to -21.9, a smaller decline than expectations of -24.0.
ECB Vice President Guindos said the ECB must stay vigilant on inflation, and interest rates are likely to stay at their current levels for some time "due to the evolution of oil prices, the depreciation of the euro, and the evolution of unit labor costs.
USD/JPY (^USDJPY) on Monday fell by -0.54%. The yen on Monday posted moderate gains as ramped-up geopolitical risks sparked safe-haven buying of the yen after the surprise attack by Hamas militants on Israel over the weekend. Also, a rally in T-note prices on Monday supported the yen. Trading activity in the yen was muted, with Japanese markets closed Monday for the Health Sports Day holiday.
December gold (GCZ3) on Monday closed +19.10 (+1.04%), and Dec silver (SIZ23) closed +0.201 (+0.93%). Precious metals prices on Monday rallied to 1-week highs and posted moderate gains. Precious metals moved higher Monday on increased safe-haven demand after Hamas militants attacked Israel over the weekend. Also, dovish comments Monday from Fed Vice Chair Jefferson and Dallas Fed President Logan gave precious metals a boost when they said the recent jump in long-term Treasury yields may mean less need for the Fed to raise interest rates again. A stronger dollar on Monday limited the upside in precious metals. Also, long liquidation pressures are weighing on gold after long gold holdings in ETFs fell to a 3-1/2 year low last Friday.
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.
