2026-08-18 · trading-venues
Dollar Edges Higher as Stocks Slide
The dollar index (DXY00) rose by +0.10% on Tuesday. The weakness in stocks on Tuesday increased demand for dollar liquidity. Also, Tuesday's rally in WTI crude oil to a 3-week high boosted inflation expectations and could prompt the Fed to tighten monetary policy, a positive factor for the dollar. In addition, rising T-note yields are strengthening the dollar's interest rate differentials as the 10-year T-note yield rose to a 1.5-year high of 4.75% on Tuesday. US economic news on Tuesday was mixed for the dollar.
The US July import price index ex-petroleum rose +0.3% m/m, stronger than expectations of +0.1% m/m.
Join 200K+ Subscribers: Find out why the midday Barchart Brief newsletter is a must-read for thousands daily.US July housing starts fell -12.4% m/m to 1.239 million, weaker than expectations of 1.345 million. However, July building permits, a proxy for future construction, rose +5.0% m/m to a 5-month high of 1.443 million, stronger than expectations of 1.375 million.
US July manufacturing production rose +0.2% m/m, right on expectations.
US July pending home sales fell -2.3% m/m, weaker than expectations of no change.
The markets are discounting a 35% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) fell by -0.04% on Tuesday. The euro was under pressure on Tuesday from a stronger dollar. Also, Tuesday's rally in crude oil prices to a 3-week high is bearish for the Eurozone economy and the euro, as Europe imports most of its energy.
Losses in the euro were limited on Tuesday after the German Aug ZEW economic growth expectations survey rose more than expected to a 6-month high. Also, higher European government bond yields strengthened the euro's interest rate differentials as the 10-year German bund yield rose to a 15-year high of 3.272% on Tuesday.
The German Aug ZEW expectations of economic growth survey rose +7.9 to a 6-month high of 34.2, stronger than expectations of 30.0.
ECB Chief Economist Philip Lane said the pace of consumer price increases in the Eurozone is likely to hold "well above" the ECB's 2% target this year due to the Iran war.
The markets are discounting a 95% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) rose by +0.09% on Tuesday. The yen tumbled to a 2-week low against the dollar on Tuesday. Higher crude oil prices are weighing on the yen as WTI crude climbed to a 3-week high on Tuesday, a bearish factor for Japan's economy and the yen, as Japan imports more than 90% of its energy.
The yen recovered from its worst level on Tuesday after T-note yields fell. The yen also garnered support from higher Japanese government bond yields, which strengthened the yen's interest rate differentials. The 10-year Japan JGB bond yield rose to a 30-year high of 2.967% on Tuesday.
The yen has underlying support from increased expectations of a BOJ rate hike after Bloomberg reported last Thursday that Japanese Prime Minister Sanae Takaichi's government supports a BOJ rate hike in either September or October. The government favors a rate hike to support the yen and prevent inflationary pressures stemming from the weak yen. Finally, the yen has ongoing support from the recent coordinated US-Japan intervention and fears that further intervention might be forthcoming if the yen remains weak.
The markets are discounting a 77% chance of a +25 bp BOJ rate hike at the September 18 policy meeting. The yen continues to suffer from weak interest rate differentials, with the BOJ's current policy rate of 1.00% well below the Fed's federal funds rate target range of 3.50%-3.75%.
October COMEX gold (GCV26) closed down -52.30 (-1.18%) on Tuesday, and September COMEX silver (SIU26) closed down -2.194 (-3.31%).
Precious metals prices plunged on Tuesday, with silver falling to a 1-week low. Precious metals were under pressure on Tuesday from a stronger dollar and rising global yields. Also, Tuesday's rally in crude oil prices to 3-week highs boosted inflation expectations that may persuade the world's central banks to tighten their monetary policies, a bearish factor for precious metals.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 10.25-month low on July 27, after reaching a 3.5-year high on February 27. Long holdings in silver ETFs also fell to a 1-year low on July 14 from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following the Aug 7 news that bullion held in China's PBOC reserves rose by +640,000 ounces to 76.08 million troy ounces in July, the twenty-first consecutive month the PBOC boosted its gold reserves.
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.- Cooling Inflation Creates a Buying Opportunity in the Canada Dollar
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