Dollar Climbs Amid Oil Price Surge and Geopolitical Uncertainty

The U.S. dollar index (DXY00) rose 0.42% as investors sought safe‑haven assets following Iran’s announcement that it had halted cease‑fire talks with the United States, raising the prospect of a potential large‑scale American military response. The news triggered a more than 7% rally in crude oil prices, which in turn lifted the 10‑year Treasury yield by roughly 7 basis points and bolstered interest‑rate differentials supporting the dollar.

Support for the dollar also stemmed from a stronger‑than‑expected May U.S. manufacturing PMI, which advanced 1.3 points to 54.0, exceeding forecasts of a 0.3‑point increase to 53.0. Meanwhile, S&P’s final May manufacturing PMI was slightly revised downward by 0.2 points to 55.1, compared with the preliminary 55.3 and the market’s expectation of an unchanged reading. On the inflation front, the May ISM prices‑paid index slipped 2.5 points to 82.1 from 84.6, falling short of the anticipated 0.4‑point rise to 85.0.

The swaps market currently assigns a 5% probability to a 25‑basis‑point rate cut at the upcoming FOMC meeting on June 16‑17.

EUR/USD (^EURUSD) slipped 0.4% as the dollar strengthened. The sharp rise in oil prices negatively impacts the Eurozone economy, which relies heavily on imported energy.

Conversely, the Eurozone’s final May manufacturing PMI was revised upward by 0.2 points to 51.6, outperforming expectations of a flat reading.

Additionally, interest‑rate swap markets have raised the odds of a 25‑basis‑point ECB rate hike at the June 11 policy meeting to 97% from 89%.

USD/JPY (^USDJPY) edged up 0.27%, reflecting dollar strength that puts pressure on the yen. The yen also weakened amid today’s pronounced 7% surge in oil prices, given Japan’s dependence on imported energy.

Markets are pricing a 78% chance of a 25‑basis‑point BOJ rate hike at the June 16 policy meeting.

June COMEX gold (GCM26) fell 107.32 points (-2.35%), and July COMEX silver (SIN26) dropped 1.195 points (-1.57%).

Gold and silver prices declined today as the dollar rallied. The precious‑metal markets are also being pressured by rising 10‑year Treasury yields and a hawkish shift in Fed expectations following the pronounced oil price rally.

Recent fund outflows from precious‑metal holdings are bearish for prices; long positions in gold ETFs hit a five‑month low on March 31 after reaching a three‑and‑a‑half‑year high on February 27. Similarly, silver ETF holdings fell to a nine‑month low on May 5 after touching a three‑and‑a‑half‑year peak on December 23.

Robust central‑bank demand continues to support gold. China’s People’s Bank reported that its gold reserves rose by 260,000 ounces in April, pushing total reserves to 74.64 million troy ounces — the largest monthly increase in a year and the eighteenth consecutive month of PBOC gold reserve growth.

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