Dollar Steadies Above Three-Week Low Amid Geopolitical Safe-Haven Demand

The dollar index (DXY00) edged up 0.07% on Wednesday, holding modestly above the three-week low reached last Friday. The currency found support from a 0.6 basis-point increase in the 10-year Treasury note yield, which helped sustain U.S. interest-rate differentials.

Safe-haven demand also lifted the dollar after Reuters reported Wednesday afternoon that the U.S. State Department is preparing to order some embassy personnel and family members to depart the Persian Gulf region. The development has fueled speculation that the United States and/or Israel could be preparing new military actions in the region targeting Iran and/or Houthi forces in Yemen.

Traders are currently assigning a 15% probability to a 25-basis-point Federal Reserve rate increase at the October 27-28 FOMC meeting.

EUR/USD (^EURUSD) declined 0.15%, pressured by the slightly stronger dollar. Ongoing social unrest in France continued to weigh on the shared currency, potentially encouraging some foreign investors to exit French assets.

Markets are pricing in just a 6% chance of a 25-basis-point rate hike at the European Central Bank’s next policy meeting on October 29.

USD/JPY (^USDJPY) gained 0.06% alongside the dollar index. However, the yen found support after Reuters reported Tuesday that the Bank of Japan plans to raise its inflation forecast for fiscal 2027 at its policy meeting later this month, a hawkish signal for BOJ monetary policy.

Traders are pricing in only a 4% probability of a 25-basis-point BOJ rate hike at the next policy meeting on October 30.

December COMEX gold (GCZ26) settled up 7.40 points, or 0.18%, while December COMEX silver (SIZ26) fell 0.290, or 0.50%.

Gold drew safe-haven support on Wednesday following the Reuters report about the potential evacuation of U.S. embassy personnel and families from the Persian Gulf. Nevertheless, the modest rise in the dollar index and the 10-year Treasury yield limited gold’s upside.

Gold prices came under pressure Tuesday after Russia’s central bank reported cutting its gold reserves to 72.8 million ounces as of October 1, the lowest level in seven years. Russia’s central bank remains the sixth-largest holder of gold among global central banks.

Strong fund positioning remains a positive factor for precious metals, with long holdings in gold ETFs climbing to a four-year high on Tuesday. Long silver ETF positions also rose to a 6.5-month high last Friday.

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