Dollar Climbs as Crude Prices Jump and Stocks Fall

The dollar index (DXY00) climbed to a 1.5-week high on Thursday and finished up by +0.22%.  The dollar remains supported amid persistent tensions in the Middle East, which is boosting safe-haven demand for the dollar.  Also, rising crude oil prices are pushing up inflation expectations, a hawkish factor for Fed policy and supportive of the dollar.  In addition, signs of strength in US manufacturing activity are bullish for the dollar, following the Apr S&P manufacturing PMI, which expanded at its strongest pace in nearly 4 years. 

The dollar fell back from its best level after US weekly jobless claims rose more than expected, and the Mar Chicago Fed National Activity Index fell more than expected to a 4-month low.

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.  The US said it was waiting for a response from Iran before peace talks could restart, and Iran said it will not resume negotiations while a US naval blockade on its ports is in place.

US weekly initial unemployment claims rose by +6,000 to 214,000, showing a weaker labor market than expectations of 210,000.

The US Mar Chicago Fed National Activity Index fell -0.23 to a 4-month low of -0.20, weaker than expectations of -0.13.

The US Apr S&P manufacturing PMI rose +1.7 to 4.0, stronger than expectations of 52.5 and the strongest pace of expansion in nearly 4 years.

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) fell to a 1.5-week low on Thursday and finished down by -0.15%.  The dollar’s strength on Thursday weighed on the euro.  Also, Thursday’s +3% surge in crude oil prices is negative for the Eurozone economy and the euro, as Europe imports most of its energy.  Thursday’s Eurozone economic news was mixed for the euro as manufacturing activity expanded more than expected, but service sector activity contracted.

The Eurozone Apr S&P manufacturing PMI unexpectedly rose by +0.6 to 52.2, stronger than expectations of a decline to 50.9 and the fastest pace of expansion in nearly four years. However, the Apr composite PMI fell -2.1 to 48.6, weaker than expectations of 50.1 and the steepest pace of contraction in 17 months.

Eurozone Mar new car registrations rose +12.5% y/y to 1.158 million units, the biggest increase in nearly two years.

Swaps are discounting a 9% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.

USD/JPY (^USDJPY) on Thursday rose by +0.13%.  The yen slid to a 1.5-week low against the dollar on Thursday amid a surge in crude prices.  Thursday’s +3% jump in crude oil prices is bearish for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs.  Higher T-note yields on Thursday also weighed on the yen.  Thursday’s Japanese economic news was mixed for the yen, as manufacturing activity expanded more than expected but service-sector activity contracted. 

Thursday’s comments from Japanese Finance Minister Satsuki Katayama hint that further yen weakness may prompt intervention in forex markets and limited yen losses, as she warned that Japanese government officials are in close contact with their US counterparts, with Japan remaining on high alert over speculative moves keeping the yen weak.    

The Japan Apr S&P manufacturing PMI rose +3.3 to 54.9, the strongest pace of expansion in 3.25 years. However, the Apr S&P services PMI fell -2.2 to an 11-month low of 51.2.

The markets are discounting a +5% chance of a 25 bp BOJ rate hike at the next meeting on April 28.

June COMEX gold (GCM26) on Thursday closed down -29.00 (-0.61%), and May COMEX silver (SIK26) closed down -2.457 (-3.15%).

Gold and silver prices settled lower on Thursday and fell to 1.5-week lows.  Thursday’s rally in the dollar index to a 1.5-week high is bearish for metals.  Also, Thursday’s +3% rally in crude oil prices pushed inflation expectations higher, which may force the world’s central banks to tighten monetary policy, a bearish factor for precious metals. 

Losses in precious metals were limited on Thursday amid increased safe-haven demand amid concerns about the escalation of the US-Iran war, as the US and Iran are both blocking the Strait of Hormuz.  Peace talks are stalled as the US said it is waiting for Iran to submit a new peace proposal, though Iran said it has no plans to take part in negotiations as long as the US naval blockade of Iran remains in place. 

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 4.25-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 7.25-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.