The dollar index (DXY00) on Tuesday rose by +0.15%. Tuesday’s stock slump boosted liquidity demand for the dollar. Also, higher crude oil prices on Tuesday increased inflation expectations, a hawkish factor for Fed policy, and a positive factor for the dollar. The dollar maintained its gains after the Conference Board US Apr consumer confidence index unexpectedly rose to a 4-month high.
Heightened US-Iran tensions are boosting demand for the dollar as a safe-haven. The US and Iran are locked in a battle for control of the Strait of Hormuz, with both sides blocking the waterway to gain leverage during an extended ceasefire.
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The US Feb S&P composite-20 home price index rose +0.90% y/y, weaker than expectations of +1.12% y/y and the smallest pace of increase in more than 2.5 years.
The Conference Board US Apr consumer confidence index unexpectedly rose by +0.6 to a 4-month high of 92.8, stronger than expectations of a decline to 89.0.
The US Apr Richmond Fed manufacturing survey rose +3 to a 14-month high of 3, stronger than expectations of 1.
Swaps markets are discounting the odds at 0% for a +25 bp rate hike at the Tue-Wed 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 Tuesday fell by -0.10%. The euro was under pressure on Tuesday from a stronger dollar. Also, Tuesday’s +3% jump in crude oil prices is negative for the Eurozone economy and the euro, as Europe imports most of its energy needs. Losses in the euro were limited after the ECB’s March CPI inflation expectations rose more than expected, a hawkish factor for ECB policy.
The ECB’s Mar 1-year CPI expectations rose to 4.0% from 2.5% in Feb, stronger than the 2.8% expected and the fastest pace of increase in nearly 2.5 years. The Mar 3-year CPI expectations rose to 3.0% from 2.5% in Feb, stronger than expectations of 2.6% and the fastest pace of increase in three years.
Swaps are discounting a 11% chance of a +25 bp rate hike by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) on Tuesday rose by +0.14%. The yen was under pressure on Tuesday from a stronger dollar. Also, higher T-note yields on Tuesday weighed on the yen. In addition, Tuesday’s +3% jump in crude oil prices is negative for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs.
Losses in the yen were limited after the BOJ voted 6-3 on Tuesday to keep its policy rate unchanged at 0.75%, as three members voting for a rate hike increases the likelihood of a rate hike in June.
The BOJ cut its 2026 GDP forecast to 0.5% from 1.0% and raised its 2026 core CPI forecast to 3.8% from 1.9%.
BOJ Governor Kazuo Ueda cast doubt on the economy’s outlook, saying there’s now a lower likelihood the BOJ will meet its outlook for the economy and prices, and that it needs to watch the impact of the Middle East conflict on forex, the economy, and prices.
Japan’s Feb machine tool orders were revised downward by -0.1 to 28.0% from the previously reported 28.1%.
The Japan Mar jobless rate unexpectedly rose by +0.1 to 2.7%, showing a weaker labor market than expectations of no change at 2.6%.
The markets are discounting a +66% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
June COMEX gold (GCM26) on Tuesday closed down -85.30 (-1.82%), and May COMEX silver (SIK26) closed down -1.806 (-2.41%).
Gold and silver prices sold off sharply on Tuesday, with gold posting a 4-week low and silver posting a 3-week low. Tuesday’s stronger dollar and higher global bond yields weighed on metals prices. Also, Tuesday’s +3% surge in crude oil prices, driven by the ongoing closure of the Strait of Hormuz, raises inflation expectations and may prompt the world’s central banks to pursue tighter monetary policies, a bearish factor for precious metals.
Heightened Middle East tensions are positive for safe-haven demand of precious metals as both the US and Iran are maintaining blockades of the Strait of Hormuz. Precious metals also 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 4.5-month low on March 31 after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 8.25-month low last Friday 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.
For more information please view the Barchart Disclosure Policy
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