The dollar index (DXY00) rose 0.15% today, buoyed by safe‑haven demand amid escalating hostilities between the United States and Iran following weekend exchanges of attacks. Weakness in equity markets also increased demand for the greenback. Moreover, a 4% surge in crude oil prices lifted inflation expectations and may prompt the Federal Reserve to tighten monetary policy, further supporting the dollar. President Trump’s announcement that the United States is reinstating the Iranian blockade and halting Iranian vessels from using the Strait of Hormuz added to the upward pressure on the greenback.
Over the weekend, the United States launched fresh missile strikes against Iran, hitting Iranian air‑defense systems, coastal radar sites, and missile and drone infrastructure. In retaliation, Iran fired missiles and drones at locations in Jordan, Bahrain, Kuwait, and Qatar, and targeted two vessels transiting the Strait of Hormuz.
The swaps market is pricing a 35% probability of a 25‑basis‑point rate hike at the upcoming FOMC meeting on July 28‑29.
EUR/USD fell to a one‑week low, slipping 0.12%, as the strong dollar weighs on the euro. The euro is also pressured by today’s 4% jump in crude oil prices, which is adverse for the Eurozone economy given its reliance on imported energy.
Analysts are assigning a 14% chance that the European Central Bank will raise rates by 25 basis points at its July 23 meeting.
USD/JPY rose 0.39% today. The yen is weakening against the dollar after Reuters reported that Japan has no plans to alter the Government Pension Investment Fund’s asset allocation. The yen’s recent rally, sparked by speculation that the $1.8 trillion GPIF might shift assets domestically, has been tempered by the oil price surge, which negatively impacts Japan’s import‑dependent economy.
Japanese authorities face a high risk of intervening in currency markets to support the yen, which remains above 160 per dollar—a 39‑year low. Past interventions have occurred whenever the yen crossed this threshold.
The market is currently assigning a 2% chance of a 25‑basis‑point rate hike by the Bank of Japan at its upcoming meeting on July 31.
August COMEX gold (GCQ26) fell 69.20 points (-1.68%), and September COMEX silver (SIU26) dropped 1.695 points (-2.82%).
Precious metals declined sharply as crude oil prices surged, driven by the US‑Iran military exchange that lifted inflation expectations and may prompt global central banks to tighten policy, a bearish factor for gold and silver. Higher bond yields also weigh on precious metals, although a modest safe‑haven demand emerged amid today’s equity market weakness.
Recent fund outflows have been bearish for metal prices, with gold ETF holdings hitting a nine‑month low after peaking at a three‑year high in February, and silver ETF holdings reaching an eleven‑month low following their December peak.
Strong central bank buying continues to support gold, as China’s People’s Bank of China increased its reserves by 320,000 ounces in May, bringing total holdings to 74.96 million troy ounces—the largest monthly gain in 17 months and the nineteenth consecutive month of PBOC gold accumulation.