Dollar Sinks as Iran Says Hormuz is Open

The dollar index (DXY00) today fell to a 7-week low and is down by -0.45%.  The dollar is under pressure today in hopes that an end to the war in Iran is near, curbing safe-haven demand for the dollar.  Also, today's rally in stocks has reduced liquidity demand for the dollar. In addition, today's 10% plunge in WTI crude oil eases inflation expectations, which is dovish for Fed policy and negative for the dollar.

Axios reported that the US and Iran are negotiating over a three-page plan to end the war, with one element under discussion being that the US would release $20 billion in frozen Iranian assets in return for Iran giving up its stockpile of enriched uranium.  Talks between the US and Iran are expected to continue in Pakistan on Sunday.

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) today is up by +0.37% at a nearly 2-month high.  Dollar weakness today is boosting the euro.  Also, today's 10% fall in crude oil prices is supportive of the Eurozone economy and the euro, as Europe imports most of its energy.  Dovish ECB comments today limited gains in the euro after ECB Governing Council members Muller and Demarco signaled the ECB should keep policy steady in the near term.

ECB Governing Council member Madis Muller said the ECB needs to stay "vigilant" to potential inflation risks from the Iran war, but "we don't have much hard evidence of second-round effects, so it's difficult to argue that there's an obvious case to raise rates."

ECB Governing Council member Alexander Demarco said, "Given higher uncertainty at the moment, June is a better moment than April" to decide whether an ECB interest rate response to the Iran war is necessary.

Swaps are discounting a 8% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.

USD/JPY (^USDJPY) today is down by -0.77%.  The yen climbed to a 4-week high today amid dollar weakness. Also, Japan's largest labor union's action to secure a more than 5% wage increase this year may boost wage-price pressures, a hawkish factor for BOJ policy.  In addition, today's 10% decline in crude oil prices is supportive for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs.  Finally, lower T-note yields today are bullish for the yen.

Comments from BOJ Governor Kazuo Ueda were slightly dovish and dampened expectations of a BOJ rate hike this month when he cited "two-sided risks" to the economy from the Middle East conflict that make "policy responses very difficult."

Japan's largest labor union reported that workers under its umbrella secured an average pay increase this year exceeding 5% for the third straight year, an outcome hawkish for BOJ policy.

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) today is up +82.50 (+1.72%), and May COMEX silver (SIK26) is up +3.580 (+4.55%).

Gold and silver prices are moving sharply higher today, posting 1-month highs.  Today's slump in the dollar index to a 7-week low is bullish for metals prices.  Also, lower global bond yields today are supportive of precious metals.  In addition, today's 10% plunge in crude oil prices to a 5-week low eases inflation expectations and may prompt the world's central banks to pursue easier monetary policies, a bullish factor for precious metals.   

Bearish factors for precious metals include today's rally in the S&P 500 to a new all-time high, which reduces safe-haven demand for the metals.  Also, today's announcement by Iran that the Strait of Hormuz is now "completely open" for commercial shipping is a major step toward ending the war and curbing safe-haven demand for precious metals.   

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.