The US dollar index (DXY00) edged up by 0.06% on Monday. The greenback found support from recent US economic data, specifically showing that new capital goods orders (nondefense, ex-aircraft and parts) rose more than anticipated, signaling sustained economic momentum. Furthermore, safe-haven demand bolstered the currency amid heightened geopolitical risks, following President Trump’s comments regarding potential escalations against Iran and reports of Houthi militant strikes on Saudi Aramco-linked facilities in the Red Sea port towns of Jizan and Yanbu over the weekend.
However, upward momentum for the dollar was tempered on Monday as a perceived easing of Middle East tensions reduced safe-haven inflows, following three days of no immediate strikes between the US and Iran. Additionally, a 7% drop in WTI crude oil prices has lowered inflation expectations, potentially encouraging the Federal Reserve to adopt a more accommodative monetary policy—a development that weighs on the dollar. Lower Treasury yields also further dampened the dollar’s interest rate differential advantages.
US nondefense capital goods orders (ex-aircraft and parts) for June rose 0.9% month-over-month, outperforming the projected 0.7% increase. Currently, markets are pricing in a 34% probability of a 25 basis point interest rate hike at the Federal Open Market Committee (FOMC) meeting scheduled for July 28-29.
The EUR/USD exchange rate saw a slight decrease of 0.02% on Monday as the dollar’s recovery pressured the euro. Despite this, euro losses were mitigated by stronger-than-expected German economic data, with the July IFO business confidence index hitting a five-month high. Additionally, the 7% decline in crude oil prices provides relief to the Eurozone economy, given its heavy reliance on energy imports. Hawkish sentiment from ECB Governing Council member Peter Kazimir, who expressed support for further interest rate hikes to manage inflation, also provided a bullish undertone for the euro.
The German July IFO business confidence index rose by 0.9 to reach 86.6, surpassing the expected 86.0. Regarding monetary policy, Peter Kazimir noted that the ECB may need at least one more rate increase to ensure inflation risks remain contained. Markets are currently pricing in an 88% chance of a 25 basis point rate hike by the ECB at its September 10 meeting.
The USD/JPY pair fell by 0.05% on Monday as the yen continued to recover from its 39-year low of 163.99 yen/USD, supported by declining T-note yields. The drop in crude oil prices also benefits the Japanese economy due to its high energy import dependency. Furthermore, the yen remains supported by the potential for intervention from Japanese authorities, who have historically acted when the yen breaches the 160 level.
Conversely, Japanese economic indicators provided some headwinds for the yen, as the May leading index (CI) was revised downward by 0.3 to 116.5. Additionally, Japan’s June PPI for services eased to 3.2% year-over-year, falling short of the expected 3.4%.
The yen continues to face pressure from widening interest rate differentials; markets currently assign only a 4% probability of a 25 basis point hike by the Bank of Japan (BOJ) at this Friday’s meeting. The BOJ’s current policy rate of 1.00% remains significantly lower than the Federal Reserve’s target range of 3.50%-3.75%.
In the commodities market, August COMEX gold (GCQ26) closed up 0.15% (+6.20), while September COMEX silver (SIU26) closed down 0.33% (-0.194).
Precious metals saw mixed performance on Monday. The significant decline in crude oil prices has lowered inflation expectations, potentially signaling future monetary easing by central banks—a trend generally favorable for metals. Safe-haven demand also remains a factor due to ongoing tensions in the Middle East following Houthi attacks on Saudi Arabian vessels. However, a temporary lull in US-Iran hostilities and diplomatic efforts involving Oman have slightly curbed this demand. On Sunday, US Ambassador to the UN Mike Waltz indicated that the US is allowing “space” for diplomacy.
Selling pressure also stems from recent fund liquidations; gold ETF holdings hit a 10-month low last Monday, and silver ETF holdings fell to a one-year low on July 14. However, strong central bank demand remains a support for gold. Notably, China’s PBOC increased its gold reserves by 480,000 ounces to 75.44 million troy ounces in June, marking the twentieth consecutive month of reserve growth.
