The dollar index (DXY00) climbed to a 7-week high on Tuesday and finished up +0.17%. The dollar found support today on hawkish Fed comments, after Boston Fed President Susan Collins and Richmond Fed President Tom Barkin warned that inflation pressures could remain elevated, suggesting they may favor additional Fed tightening. Dollar gains were limited on Tuesday after WTI crude oil prices fell more than 1% to a 3-week low, easing inflation expectations and potentially persuading the Fed to loosen monetary policy, a bearish factor for the dollar.
Also, Tuesday's weaker-than-expected Sep Richmond Fed manufacturing survey was bearish for the dollar. Critical Metals Surges 35% on Greenland Pact. The Tanbreez Opportunity Is Huge — But So Is the Risk.
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The US Sep Richmond Fed manufacturing survey fell -6 to a 7-month low of -2, weaker than expectations of 2. Boston Fed President Susan Collins said she saw an "increased likelihood" of scenarios in which inflation remains "notably above 2%." Richmond Fed President Tom Barkin warned it could take time for inflationary shocks to wane, and there is a risk elevated pressures could become entrenched. Markets are pricing in a 55% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) fell to a 7-week low on Tuesday and finished down -0.18%. Dollar strength on Tuesday undercut the euro. Lower European government bond yields also weighed on the euro after the 10-year German Bund yield fell to a 1.5-week low of 3.422% on Tuesday, weakening the euro's interest rate differentials.
Euro losses accelerated after the Eurozone Sep consumer confidence index fell more than expected. Euro losses were limited Tuesday on concerns that the ECB may have to keep tightening monetary policy after ECB Chief Economist Philip Lane said a new wave of high energy prices means Eurozone inflation will stay elevated longer than the ECB initially anticipated. Also, Tuesday's -1% decline in crude oil prices to a 3-week low supports the Eurozone economy and the euro, as Europe imports most of its energy.
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