The dollar index (DXY00) on Monday traded higher during the morning but then fell back in the afternoon after President Trump told CBS News in a phone interview that "I think the war is very complete, pretty much" and that the military operation is "very far" ahead of its 4-5 week timeframe.
The dollar initially saw support from Monday’s early spike in oil prices above $100 per barrel, which was hawkish for Fed policy. Also, higher oil prices are beneficial for the dollar because the US is the world's largest oil producer. However, oil prices fell back later in the day after G-7 finance ministers pledged to release strategic oil reserves if necessary and after President Trump seemed to indicate that the Iran war might soon end.
The dollar continued to be undercut by last Friday's weak US economic news, which included the -92,000 decline in US Feb payrolls and the -0.2% m/m decline in US Jan retail sales.
Swaps markets are discounting the odds at 4% for a -25 bp rate cut at the next policy meeting on March 17-18.
The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) on Monday rose by +0.17% as the dollar fell back. The euro also recovered as oil prices fell back from the initial surge. The Eurozone economy is heavily dependent on imported oil and natural gas.
Swaps are discounting a 1% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) ended Monday little changed. The yen saw early pressure from the upward spike in oil prices since the Japanese economy is highly dependent on imported energy.
The markets are discounting a +5% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) on Monday closed down -55.0 (-1.07%), and May COMEX silver (SIK26) closed up +0.212 (+0.25%).
Gold prices traded lower on Monday due to early strength in the dollar and reduced safe-haven demand after President Trump seemed to indicate that the war with Iran might be over soon.
Still, precious metals have underlying support from safe-haven demand tied to worries that the US and Israeli war against Iran will drag on. Iran's Assembly of Experts over the weekend appointed hardliner Mojtaba Khamenei as Iran's new supreme leader, the son of Ayatollah Ali Khamenei. President Trump said he is "not happy" with the choice of the new leader.
Strong central bank demand for gold is also supportive of gold prices, following the recent news that bullion held in China's PBOC reserves rose by +40,000 ounces to 74.19 million troy ounces in January, the fifteenth consecutive month the PBOC has boosted its gold reserves.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23, though liquidation has since knocked them down to a 3.5-month low on February 23.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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