The dollar index (DXY00) fell to a 7-week low on Monday and finished down by -0.02%. The dollar moved lower on Monday as easing geopolitical tensions in the Middle East boosted stocks and reduced safe-haven demand for the dollar. Also, Monday’s -5% fall in WTI crude oil prices lowered inflation expectations and could prompt the Fed to loosen monetary policy, a negative factor for the dollar.
The dollar recovered nearly all of its losses on Monday on signs of US economic strength after the July ISM manufacturing index rose more than expected to a 4-year high.
More News from Barchart
Dovish comments on Monday from New York Fed President John Williams were negative for the dollar, as he said interest rates remain well positioned and inflation should ease during the second half of the year.
The US July ISM manufacturing index rose +2.3 to 55.6, stronger than expectations of 53.9 and the fastest pace of expansion in four years.
US June construction spending unexpectedly fell -0.1% m/m, weaker than expectations of a +0.2% m/m increase.
The markets are discounting a 67% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) fell by -0.12% on Monday. The euro fell from a 1.5-month high and moved lower on Monday after the dollar recovered from early losses on the stronger-than-expected July ISM manufacturing index. Also, weaker-than-expected Eurozone economic news weighed on the euro after the Eurozone July S&P manufacturing PMI was revised downward and after German June retail fell more than expected, the most in 13 months.
The euro initially moved higher on Monday amid early dollar weakness and the -5% plunge in crude oil prices, which is supportive of the Eurozone economy and the euro as Europe imports most of its energy.
The Eurozone July S&P manufacturing PMI was revised downward by -0.1 to 51.9 from the originally reported 52.0.
German June retail sales fell -1.1% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 13 months.
The markets are discounting an 88% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) fell by -0.35% on Monday. The yen rallied to a 2.75-month high against the dollar on Monday after the US and Japan warned of further coordinated intervention in currency markets in support of the yen. Also, lower T-note yields on Monday are bullish for the yen. In addition, Monday’s -5% slump in crude oil prices is bullish for Japan’s economy and the yen as Japan imports more than 90% of its energy.
