Dollar Gains on Weak Stocks and Soaring Crude Prices

The dollar index (DXY00) today is up by +0.23%.  Today's stock slump is boosting liquidity demand for the dollar.  Also, higher crude oil prices today 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. 

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) today is down by -0.23%.  The euro is under pressure today from a stronger dollar. Also, today'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 are 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 12% chance of a +25 bp rate hike by the ECB at Thursday's policy meeting.

USD/JPY (^USDJPY) today is up by +0.14%.  The yen is under pressure today from a stronger dollar.  Also, higher T-note yields today are weighing on the yen.  In addition, today'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 are limited after the BOJ voted 6-3 today 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 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) today is down -111.50 (-2.38%), and May COMEX silver (SIK26) is down -2.555 (-3.41%).

Gold and silver prices are sharply lower today, with gold at a 4-week low and silver at a 3-week low.  Today's stronger dollar and higher global bond yields are weighing on metals prices. Also, today'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.