The dollar index (DXY00) rose to a 10.5-month high on Monday and ended with a gain of 0.40%. The dollar gained on Monday on safe-haven support amid concerns about a protracted war in Iran. President Trump told the Financial Times on Sunday that he wants to “take Iran’s oil” and could seize the Kharg Island export hub, which would involve US ground troops and mark a major escalation of the conflict. The dollar’s gains were limited as Monday’s sharp drop in Treasury yields weakened dollar interest rate differentials.
The Dallas Fed’s March US manufacturing activity survey fell from -0.4 to -0.2, weaker than expectations for an increase to 2.0.
Fed Chair Powell said inflation expectations are well anchored and the FOMC will meet its 2% inflation target. He added: “It is too early to know what the economic effects will be” of the war with Iran.
Swap markets are pricing in 3% odds of a +25bp rate hike at the April 28-29 FOMC meeting.
The dollar remains weakened by a poor outlook for interest rate differentials: the FOMC is expected to cut interest rates by at least -25 bps in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bps in 2026.
EUR/USD (^EURUSD) fell to a one-week low on Monday and ended down -0.45%. The euro came under pressure on Monday from a stronger dollar. Additionally, economic news on Monday showing the Eurozone Economic Sentiment Index fell more than expected to a six-month low was bearish for the Euro. Furthermore, Monday’s +3% rally in crude oil prices to a three-week high is negative for the euro and the eurozone economy, as Europe imports most of its energy. Losses in the euro were limited on Monday after the German March CPI posted its biggest year-on-year rise in two years, a hawkish factor for ECB policy.
The Eurozone Economic Sentiment Index fell -1.6 to a six-month low of 96.6, weaker than expectations of 96.7.
German March CPI (EU harmonized) rose +1.2% MoM and +2.8% YoY, right in line with expectations, with the +2.8% YoY increase the largest YoY increase in two years.
Swaps price in a 52% probability of a +25bp rate hike by the ECB at the April 30 policy meeting.
USD/JPY (^USDJPY) fell -0.40% on Monday. The yen rebounded from a 1.75-year low against the dollar on Monday as comments from Japan’s top foreign exchange official sparked short covering after he said the government could take bold steps in currency markets if the yen continues to weaken. The yen added to its gains on Monday when Bank of Japan Governor Kazuo Ueda said the Bank of Japan will “closely watch currency movements,” fueling speculation that the Bank of Japan could raise interest rates at next month’s meeting to support the yen. The drop in Treasury yields on Monday also supported the yen.
Bank of Japan Governor Kazuo Ueda said that currency movements are an important factor affecting the economy and prices, and that the Bank of Japan will “watch currency movements closely.”
Japan’s Deputy Foreign Minister Atsushi Mimura, the country’s top monetary official, said: “We are hearing growing concern that speculative activity is picking up in the currency market. If this situation continues, we believe decisive action will soon be necessary.”
Markets are pricing in a +82% probability of a 25bp rate hike by the BOJ at the next meeting on April 28.
April COMEX gold (GCJ26) closed Monday up +33.50 (+0.75%), and May COMEX silver (SIK26) closed up +0.773 (+1.11%).
Gold and silver prices rose on Monday as concerns about a protracted war in Iran boosted safe-haven demand for precious metals. The war with Iran has entered its fifth week with no end in sight. Precious metals added to their gains on Monday after President Trump said he wants to “take Iran’s oil” and could seize the Kharg Island export hub, which would involve US ground troops and mark a major escalation of the conflict. Additionally, Monday’s lower global bond yields were bullish for precious metals. Precious metals retreated from their best levels on Monday after the dollar index rose to a 10.5-month high.
Precious metals are safely supported amid concerns about escalating war in the Middle East. Saudi Arabia agreed to give US military access to King Fahd air base, and the United Arab Emirates closed an Iranian-owned hospital and club. Iran’s neighbors in the Middle East are increasingly frustrated with Iran, which has responded to American and Israeli attacks by striking targets in several nearby nations.
Precious metals continue to see strong safe haven demand amid the ongoing war in Iran. Additionally, uncertainty over US tariffs, US political turmoil, large US deficits, and uncertainty over government policies are driving demand for precious metals as a store of value.
The recent liquidation of precious metals funds is bearish for prices, as long holdings in gold ETFs fell to a 3.5-month low last Friday after reaching a 3.5-year high on February 27. Additionally, long holdings in silver ETFs fell to a 6.25-month low last Friday after reaching a 3.5-year high on December 23.
Strong demand for gold from the central bank supports gold prices, following recent news that bullion held in China’s PBOC reserves increased by +40,000 ounces to 74.19 million troy ounces in January, the 15th consecutive month that the PBOC has increased its gold reserves.
On the date of publication, Rich Asplund had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
