The dollar index (DXY00) on Monday fell by -0.05%. The dollar gave up an early advance on Monday and turned lower after the New York Post reported that Vice President Vance is on his way to Pakistan for talks with Iran, and that President Trump is open to meeting with Iranian leaders, boosting the chances of a resolution to the war.
The dollar initially moved higher on Monday amid ramped-up tensions in the Middle East after Iran on Saturday said the Strait of Hormuz was closed for shipping following a refusal by the US to lift a naval blockade of Iran’s vessels. Also, the US Navy fired upon and boarded an Iranian-flagged cargo ship in the Gulf of Oman, the first seizure in the US blockade of the Strait of Hormuz. Falling stocks today are also boosting liquidity demand for the dollar. In addition, Monday’s +6% jump in WTI crude oil prices raises inflation expectations, which are hawkish for Fed policy and supportive of the dollar.
The UK reported Saturday that a tanker was approached by Iranian gunboats off the coast of Oman before being fired at, and an unknown projectile hit a container ship in a separate incident. India also said some of its ships were fired upon. A US-Iran ceasefire is due to expire on Wednesday, and it’s unclear whether that truce will be extended, or whether talks between US and Iranian officials will go ahead later this week.
Swaps markets are discounting the odds at 1% for a +25 bp rate hike at the April 28-29 FOMC meeting.
The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) on Monday rose by +0.18%. The euro recovered from early losses on Monday and moved higher after German Mar producer prices posted their biggest increase in 3.5 years, a hawkish factor for ECB policy. Gains in the euro were limited due to Monday’s +6% jump in crude oil prices, which is negative for the Eurozone economy and the euro, as Europe imports most of its energy.
German Mar PPI rose +2.5% m/m, stronger than expectations of +1.4% m/m and the largest increase in 3.5 years.
Swaps are discounting a 10% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
USD/JPY (^USDJPY) on Monday rose by +0.13%. Monday’s +6% jump in crude oil prices is negative for the Japanese economy and weighed on the yen, as Japan imports more than 90% of its energy needs. In addition, higher T-note yields on Monday were bearish for the yen.
The Japan Feb tertiary industry index fell -0.4% m/m, a smaller decline than expectations of -0.5% m/m.
The markets are discounting a +17% chance of a 25 bp BOJ rate hike at the next meeting on April 28.
June COMEX gold (GCM26) on Monday closed down -50.80 (-1.04%), and May COMEX silver (SIK26) closed down -1.804 (-2.20%).
Gold and silver prices on Monday settled sharply lower. Precious metals fell as Monday’s +6% jump in WTI crude oil prices raised inflation expectations and may prompt the world’s central banks to keep monetary policy tight, a negative for precious metals. Also, higher global bond yields on Monday weighed on precious metals.
Concerns that the US-Iran war will persist are supporting safe-haven demand for precious metals after Iran on Saturday said the Strait of Hormuz was closed for shipping following a refusal by the US to lift a naval blockade of Iran’s vessels. Also, the US Navy fired upon and boarded an Iranian-flagged cargo ship in the Gulf of Oman, the first seizure in the US blockade of the Strait of Hormuz.
Precious metals remain supported by uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty, which are boosting demand for precious metals as a store of value.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 4-month low on March 31 after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 7-month low on March 27 after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following the recent news that bullion held in China’s PBOC reserves rose by +160,000 ounces to 74.38 million troy ounces in March, the seventeenth consecutive month the PBOC has 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. This article was originally published on Barchart.com
