Dollar Gains on U.S. Labor Market Strength and Hawkish Fed

The dollar index (DXY00) on Tuesday rose by +0.07% and posted a 10-1/4 month high. Strength in the U.S. labor market supported the dollar after Aug JOLTS job openings unexpectedly rose.  Also, hawkish comments Tuesday from Cleveland Fed President Mester and Atlanta Fed President Bostic pushed the 10-year T-note yield up to a 16-year high and supported the dollar.  In addition, the weakness in stocks Tuesday boosted the liquidity demand for the dollar.  The dollar fell back from its best levels after the yen rallied to a 1-1/2 week high on signs that Japan intervened in the currency market to support the yen.

Tuesday’s U.S. economic news was better than expected and bullish for the dollar.   The Aug JOLTS job openings unexpectedly rose +690,000 to 9.610 million, showing a stronger labor market than expectations for a decline to 8.815 million.

Hawkish Fed comments on Tuesday were bullish for the dollar.  Cleveland Fed President Mester said, "I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that have already occurred."  Also, Atlanta Fed President Bostic said the Fed still "has a ways to go" on inflation and he wants to hold interest rates at elevated levels "for a long time."

EUR/USD (^EURUSD) on Tuesday fell by -0.05% and posted a 9-3/4 month low.  Dollar strength on Tuesday was the main bearish factor for the euro.  Also, the jump in the 10-year T-note yield to a 16-year high Tuesday strengthened the dollar’s interest rate differentials versus the euro.  Hawkish ECB comments Tuesday also helped EUR/USD recover from its worst levels.

ECB Governing Council member Simkus said inflation still faces many "lines of resistance" and that "maintaining interest rates sufficiently high is very important and critically important on the path to returning inflation to the target."

ECB Chief Economist Lane said, "Price increases are still well above 2%, we are not at the inflation target yet, and therefore, there is still work to be done in terms of bringing inflation down." He added that ECB borrowing costs have now "reached a level that will make a substantial contribution to get inflation to target" and that the "base case is to maintain this level for as long as needed."

USD/JPY (^USDJPY) on Tuesday fell by -0.63%.  The yen on Tuesday recovered from an 11-1/2 month low against the dollar and rallied to a 1-1/2 week high on reports that Japan was intervening in the forex market in support of the yen.  Comments from Japanese Finance Minister Suzuki on Tuesday warned of intervention when he said he won’t judge the possibility of forex intervention on currency levels but through market volatility.  In addition, the yen garnered support from higher Japanese government bond yields after the 10-year JGB bond yield rose to a 10-year high of 0.785%.  The yen on Tuesday initially moved lower on higher T-note yields.   

December gold (GCZ3) on Tuesday closed -5.70 (-0.31%), and Dec silver (SIZ23) closed -0.044 (-0.21%). Precious metals prices on Tuesday extended Monday’s losses, with gold falling to a 6-3/4 month low and silver dropping to a 6-1/2 month low.  Dollar strength Tuesday undercut metals prices as the dollar index rallied to a 10-1/4 month high.  Also, higher global bond yields on Tuesday were negative for metals.  In addition, hawkish central bank comments were bearish for precious metals after Cleveland Fed President Mester, Atlanta Fed President Bostic, and ECB Governing Council member Simkus signaled their support for higher interest rates for longer.  Finally, long liquidation pressures weighed on gold after long gold holdings in ETFs fell to a 3-1/2 year low Monday.  Precious metals recovered from their worst levels Tuesday as the selloff in stocks sparked some safe-haven demand for precious metals.

More Forex News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.