The dollar index (DXY00) fell by -0.05% on Wednesday. The dollar gave up an early advance on Wednesday and posted modest losses as stocks recovered from their worst levels, which reduced liquidity demand for the dollar.
The dollar initially moved higher on Wednesday amid the surge in crude oil prices as tensions between the US and Iran intensified. The stronger crude oil prices on Wednesday pushed up inflation expectations and could persuade the Fed to keep monetary policy tight, a supportive factor for the dollar. Also, the escalation of hostilities between the US and Iran has boosted demand for the dollar as a safe haven.
Join 200K+ Subscribers:
Find out why the midday Barchart Brief newsletter is a must-read for thousands daily.
The US launched strikes against more than 80 targets in Iran in response to Iran attacking commercial shipping in the Strait of Hormuz. Also, President Trump said the ceasefire with Iran is over, raising the prospect of renewed hostilities in the region.
The minutes of the June 16-17 FOMC meeting were hawkish and dollar-supportive, as they stated that “Participants generally assessed that information received over the intermeeting period suggested that upside risks to price stability remained elevated while downside risks to achieving maximum employment had moderated a bit.”
The swaps markets are discounting the odds at 31% for a +25 bp rate hike at the next FOMC meeting on July 28-29.
EUR/USD (^EURUSD) rose by +0.14% on Wednesday. The euro recovered from early losses on Wednesday and turned higher after ECB Governing Council member Joachim Nagel warned that he can’t rule out another rate increase by the ECB. The euro initially moved lower on Wednesday after crude oil prices surged more than +4%, which is bearish for the Eurozone economy and the euro, as Europe imports most of its energy.
ECB Governing Council member and Bundesbank President Joachim Nagel said he can’t rule out another ECB interest rate increase due to the recent setback with Iran.
The markets are discounting a +21% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) rose by +0.22% on Wednesday. The yen slid on Wednesday after crude oil prices jumped by more than 4%, which is bearish for the Japanese economy and the yen, as Japan imports more than 90% of its energy. Also, higher T-note yields on Wednesday were negative for the yen.
Losses in the yen were limited as Wednesday’s -2% plunge in the Nikkei Stock Index boosted safe-haven demand for the yen. Also, today’s Japanese economic news that showed the Jun eco watchers outlook survey rose more than expected to a 4-month high was bullish for the yen. In addition, stronger Japanese government bond yields have strengthened the yen’s interest rate differentials after the 10-year JGB yield climbed to a 29-year high of 2.883% today.
The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen reached that level.
The markets are discounting a +2% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.
August COMEX gold (GCQ26) on Wednesday closed down -75.00 (-1.80%), and September COMEX silver (SIU26) closed down -2.790 (-4.55%).
Gold and silver prices settled sharply lower on Wednesday. The stronger dollar today is weighing on precious metals along with higher global bond yields. Also, today’s +6% jump in crude oil prices raises inflation expectations and could prompt central banks worldwide to keep their monetary policies restrictive, a bearish factor for precious metals. In addition, hawkish comments today from ECB Governing Council member Joachim Nagel weighed on precious metals, as he said he can’t rule out another ECB interest rate increase.
Precious metals have some safe-haven support amid weakness in stocks and renewed tensions in the Middle East following US attacks on Iran in response to attacks on shipping in and around the Strait of Hormuz.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low last Friday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.5-month low on Monday from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC 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.
For more information please view the Barchart Disclosure Policy
here.
More news from Barchart
