Dollar Sees Support From Higher T-note Yields

The dollar index (DXY00) is up +0.03% on support from today’s +3.8 bp rise in the 10-year T-note yield, which supported the dollar’s interest rate differentials.  However, there was some downward pressure from reduced safe-haven demand on hopes for a near-term US-Iran agreement to end military hostilities and reopen the Strait of Hormuz. 

Reports are circulating that a preliminary US-Iran peace agreement could be signed as early as this weekend, ending the military hostilities, reopening the Strait of Hormuz, and ending the US blockade on Iran and its oil exports.  Negotiations would then begin on the more intractable issues, such as sanctions against Iran, the release of $24 billion of frozen Iranian assets, and the resolution of Iranian nuclear issues.  However, Iran claimed it would continue to exert control over the Strait of Hormuz even after a new ceasefire agreement.

The dollar saw support from today’s news that the University of Michigan’s June US Consumer Sentiment Index rose +4.1 to 48.9, which was stronger than expectations for a rise to 46.0. On the dovish side for the dollar, however, the University of Michigan’s June 1-year inflation expectations rate eased to +4.6% from +4.8% in May, and was weaker than expectations of +4.9%. The June 5-10 year inflation expectations rate eased to +3.4% from +3.9% in May, weaker than expectations of +3.8%.

The swaps markets are discounting the odds at zero for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) today is down -0.04% on dollar strength. The euro has underlying support after the ECB raised its deposit rate by +25 bp on Thursday, which supported the euro’s interest rate differentials.  However, the ECB cut its 2026 Eurozone GDP estimate to +0.8% from a previous estimate of +0.9% and raised its 2026 Eurozone inflation ex-food and energy forecast to +2.5% from a previous forecast of +2.3%.

The markets are discounting a +37% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.

USD/JPY (^USDJPY) is up +0.16% on dollar strength.  The yen has underlying support from hopes for an end to the US-Iran conflict, which would allow oil prices to decline and support Japan’s economy, which is heavily dependent on imported oil and gas.  In addition, the yen has support from expectations that the BOJ will raise interest rates at next week’s policy meeting. 

The markets are discounting a +97% chance of a +25 bp BOJ rate hike at the next policy meeting on June 16.

August COMEX gold (GCQ26) is up +93.1 (+2.26%), and July COMEX silver (SIN26) is up +2.669 (+4.17%).

Gold and silver prices are seeing some short-covering today after gold on Thursday fell to a

6.75-month low and silver fell to a 2.5-month low.  Gold and silver are trading higher today as oil prices fell, which is a dovish factor for G-7 monetary policy. 

Bearish factors for precious metals today include a slightly stronger dollar index, higher US T-note yields, and reduced safe-haven demand as a US-Iran agreement could be signed as early as this weekend.  Precious metals prices are also being undercut by yesterday’s +25 bp rate hike by the ECB, and expectations for a BOJ rate hike at its policy meeting next week.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 6.25-month low on Wednesday after climbing to a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to a 10-month low on Monday 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 +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC has boosted its gold reserves.