Dollar Falls as Crude Oil Retreats

The dollar index (DXY00) today is down by -0.11%.  The dollar is under pressure today amid a -4% plunge in crude oil prices to a 5-week low, which lowers inflation expectations and may prompt the Fed to ease monetary policy, a negative factor for the dollar. Also, today’s rally in the Chinese yuan to a 3.25-year high is weighing on the dollar.  The dollar recovered from its worst level after the May Richmond Fed manufacturing survey of current conditions rose more than expected to a 4.5-year high.

The US May Richmond Fed manufacturing survey of current conditions rose +10 to a 4.5-year high of 13.  stronger than expectations of 4.

Swaps markets are discounting the odds at 2% for a 25 bp rate cut at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) rose to a 1-week high today and is up by +0.15%.  Hawkish ECB comments today supported the euro after ECB Governing Council member Yannis Stournaras said, “The likeliest outcome is an ECB interest rate hike in June.” Today’s -4% plunge in crude oil prices to a 5-week low is also supportive of the Eurozone economy and the euro, as Europe imports most of its energy. Gains in the euro are limited after German economic advisers cut their 2026 GDP forecast for Germany.

Eurozone Apr new car registrations rose +5.1% y/y to 972,000 units.

ECB Governing Council member Yannis Stournaras said, “The likeliest outcome is an ECB interest rate hike in June” as the conflict in the Middle East and subsequent rise in energy prices are proving to be more prolonged.

German economic advisers to Chancellor Merz cut their 2026 German GDP forecast to 0.5% from a November estimate of 0.9%.

Swaps are discounting a 95% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.

USD/JPY (^USDJPY) today is up by +0.06%.  The yen slid to a 3.5-week low against the dollar today after Japan’s April PPI service prices rose less than expected, a dovish factor for BOJ policy.  However, losses in the yen are limited amid lower T-note yields and the -4% plunge in crude oil prices to a 5-week low, which benefits the Japanese economy and the yen as Japan imports more than 90% of its energy.  Also, the closer the yen falls to 160 per dollar, the greater the likelihood that Japanese authorities will intervene in forex markets to prop up the yen, as they have done several times recently when the yen fell below that level.

Japan Apr PPI services prices eased to +3.0% y/y from +3.3% y/y in Mar, weaker than expectations of +3.3% y/y.

The markets are discounting a +76% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.

June COMEX gold (GCM26) today is down -53.80 (-1.19%), and July COMEX silver (SIN26) is down -1.361 (-1.78%).

Gold and silver prices are sharply lower today, with gold falling to a 1.75-month low.  Today’s stock rally has dampened safe-haven demand for precious metals.  Also, today’s hawkish central bank comments are weighing on precious metals after ECB Governing Council member Yannis Stournaras said, “The likeliest outcome is an ECB interest rate hike in June.” Silver prices are also pressured today on concerns over industrial metals demand after German economic advisers to Chancellor Merz cut their 2026 German GDP forecast. 

Dollar weakness today is supportive of precious metals.  Also, today’s -4% plunge in crude oil prices lowers inflation expectations and may prompt the world’s central banks to pursue easier monetary policies, a bullish factor for metals.  In addition, lower global bond yields today are bullish for precious metals. 

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 5.25-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 9.25-month low on May 5 after rising to a 3.5-year high on December 23.

Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has boosted its gold reserves.