Dollar Firms on Safe-Haven Buying, Weaker Euro, Yuan

With U.S. banks and the U.S. Treasury closed on Monday for the Columbus Day holiday, traders focused their attention on Europe and Asia. The U.S. Dollar rallied against a basket of currencies with support coming from a weaker Euro and safe-haven buying.

The Euro rose due to an escalation of tensions between the European Union and Italy. China’s Yuan weakened as Beijing’s move to spur more lending failed to ease concern about economic growth.

For the session, the December U.S. Dollar Index settled at 95.436, up 0.131 or +0.14%.

In a sign that the confrontation between Rome and the European Union is ready to escalate, Italian 10-year bond yields increased nearly 20 basis points to 3.60 percent, the highest level in 4 ½ years, while the Italian stock market fell to its weakest since April 2017.

In further evidence that Italy and the EU may be headed for a showdown, Italian Deputy Prime Minister Matteo Salvini, speaking at a media conference with French far-right leader Marine Le Pen, denounced European Commission President Jean-Claude Juncker and Economic Commissioner Pierre Moscovici as enemies of Europe.

In China, the People’s Bank of China (PBOC) announced a steep cut in the level of cash that banks must hold as reserves, marking the fourth such decrease this year. This attempt from Beijing to calm investor worries about the trade war between China and the United States didn’t work however, the Yuan ended at its lowest official close in seven weeks.

Asia Stock Markets

Asia markets were mixed on Tuesday, reflecting the two-sided trade in the U.S. markets the previous session. Japanese markets opened lower after Monday’s bank holiday. At 0316 GMT, the Nikkei 225 Index is trading 23564.91, down 218.81 or -0.92 percent. Australia’s S&P/ASX 200 is also down sharply at 6040.50, down 59.80 or -0.98 percent. China’s Shanghai Index is at 2718.30, up 1.79 or +0.07 percent.

Gold

Gold prices plunged on Monday due to the stronger U.S. Dollar. Another steep drop in U.S. equity markets sent investors flocking into the safe-haven dollar which led to a drop in foreign demand for dollar-denominated gold.

For the session, December Comex Gold settled at $1188.60, down $17.00 or -1.43%.

Last week, gold was supported by bids tied to weakness in emerging markets. However, gains were limited by higher U.S. interest rates and bond yields. Additionally, speculators cut their net short position in COMEX gold by 4,186 contracts to 73, 128 in the week to October 2.