Dollar Climbs on Hawkish Fed President Collins

The dollar index (DXY00) climbed to a 7-week high today and is up by +0.10%. The dollar found support today on hawkish comments from Boston Fed President Susan Collins, who said she saw inflation remaining above 2%, suggesting she may favor additional Fed tightening.

Dollar gains are limited today 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, today's weaker-than-expected Sep Richmond Fed manufacturing survey is bearish for the dollar.

The US Sep Richmond Fed manufacturing survey fell -6 to a 7-month low of -2, weaker than expectations of 2.

Hawkish comments today from Boston Fed President Susan Collins suggest she may favor additional Fed tightening when she said she saw an "increased likelihood" of scenarios in which inflation remains "notably above 2%."

Markets are pricing in a 51% 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 today and is down by -0.16%. Strength in the dollar today is undercutting the euro. Lower European government bond yields are also weighing on the euro after the 10-year German Bund yield fell to a 1.5-week low of 3.422% today, weakening the euro's interest rate differentials. Euro losses accelerated after the Eurozone Sep consumer confidence index fell more than expected.

Euro losses are limited 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, today'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.

The Eurozone Sep consumer confidence index fell -1.0 to -16.5, weaker than expectations of -16.0.

The markets are discounting a 46% chance of a +25 bp ECB rate hike at the ECB's next policy meeting on October 29.

USD/JPY (^USDJPY) is down by -0.08% today. The yen is strengthening today with the -1% fall in crude oil prices to a 3-week low, which is a positive factor for Japan's economy and the yen, as Japan imports more than 90% of its energy. Also, lower T-note yields today are supportive of the yen. Moves in the yen may be exaggerated today amid below-normal trading activity, with markets in Japan closed for a National holiday.