Dollar Weakens Slightly as Stock Gains Ease Demand for Greenback

The dollar index (DXY) fell 0.26% on Monday, retreating as a broad equity rally reduced demand for the currency. The decline was modest, however, because a 2% rise in WTI crude oil boosted inflation expectations, supporting the dollar by keeping the prospect of tighter monetary policy alive.

Swaps markets are pricing a 32% probability of a 25‑basis‑point rate hike at the Federal Reserve’s July 28‑29 meeting.

EUR/USD rose 0.33% on Monday, driven by a softer dollar and better‑than‑expected Eurozone confidence data for June, which pushed the confidence index to 95.0, above the forecast of 94.3. The euro’s gains were tempered by a stronger‑than‑expected May M3 money‑supply growth of 3.2% year‑over‑year, which is typically bearish for the currency.

Markets assign a 7% chance of a 25‑basis‑point rate increase by the ECB at its July 23 meeting.

USD/JPY edged up 0.14% on Monday. The yen fell to a 39‑year low against the dollar after Japanese officials signaled a willingness to pursue “appropriate” monetary management to discourage further BOJ tightening. Despite this, the yen’s losses were limited by stronger‑than‑expected May retail sales in Japan, which rose 1.9% month‑over‑month versus an expected decline of 0.5%.

Risk of currency‑market intervention has risen after Finance Minister Shunichi Suzuki discussed “bold” steps with U.S. Treasury Secretary Janet Yellen, indicating closer coordination on foreign‑exchange policy.

Markets give a 2% probability of a 25‑basis‑point rate hike by the BOJ at its July 31 meeting.

August COMEX gold closed down 1.40% and July COMEX silver fell 1.77% on Monday.

Precious‑metal prices dropped sharply as crude oil rallied, raising inflation expectations and increasing the likelihood of tighter global monetary policy—both bearish for gold and silver. The equity market’s strength also reduced safe‑haven demand, while a weaker dollar limited the downside.

Recent fund outflows have pressured metals: gold ETF holdings fell to a nine‑month low last Friday, and silver ETF holdings slipped to an 11‑month low last Thursday, both retreating from multi‑year highs.

Conversely, strong demand from central banks supports gold. China’s PBOC increased its gold reserves by 320,000 ounces in May, bringing holdings to 74.96 million troy ounces—the largest monthly rise in 17 months and the nineteenth consecutive month of additions.

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