The dollar index (DXY00) on Friday fell by -0.24%. The dollar gave up an early advance and turned lower on Friday as stocks rallied on optimism that peace talks between the US and Iran are set to resume. Bloomberg reported that Iranian Foreign Minister Abbas Araghchi is expected to arrive in Pakistan on Friday night for a possible second round of peace talks between the US and Iran. Falling crude oil prices on Friday lowered inflation expectations, a dovish factor for Fed policy, and a negative factor for the dollar. In addition, strength in stocks on Friday reduced liquidity demand for the dollar. The dollar recovered from its worst level after the University of Michigan’s US Apr consumer sentiment index was revised higher than expected.
Heightened US-Iran tensions are boosting safe-haven demand for the dollar. The US and Iran are locked in a battle for control of the Strait of Hormuz, with both sides blocking the waterway to gain leverage during an extended ceasefire. The US said it was waiting for a response from Iran before peace talks could restart, and Iran said it will not resume negotiations while a US naval blockade on its ports is in place.
The University of Michigan US Apr consumer sentiment index was revised upward by +2.2 to 49.8, stronger than expectations of 48.5.
The University of Michigan US Apr 1-year inflation expectations were revised downward by -0.1 to 4.7% from 4.8%. The Apr 5-10 year inflation expectations were revised upward by +0.1 to a 6-month high of 3.5% from 3.4%.
Swaps markets are discounting the odds at 1% for a +25 bp rate hike at the April 28-29 FOMC meeting.
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 Friday rose by +0.32%. The euro moved higher on Friday amid dollar weakness. Also, hawkish comments on Friday from ECB Governing Council member Peter Kazimir boosted the euro when he said the Iran war might necessitate a slight ECB interest rate increase. Gains in the euro were limited after the German Apr IFO business confidence index fell more than expected to a nearly 6-year low.
The German Apr IFO business confidence index fell -1.9 to a nearly 6-year low of 84.4, weaker than expectations of 85.7.
Swaps are discounting a 9% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
USD/JPY (^USDJPY) on Friday fell by -0.19%. The yen rebounded from a 1.5-week low against the dollar on Friday and moved higher as the dollar weakened on optimism about US-Iran peace talks. Also, Friday’s Japanese economic news, showing higher-than-expected Mar national CPI and Mar PPI services prices, is hawkish for BOJ policy and supportive of the yen. In addition, Friday’s -1% decline in crude oil prices was supportive for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs.
Japan Mar national CPI rose +1.5% y/y, stronger than expectations of +1.4% y/y. Mar national CPI ex-fresh food and energy rose +2.4% y/y, right on expectations.
Japan Mar PPI services prices rose +3.1% y/y, stronger than expectations of +3.0% y/y and the fastest pace of increase in 6 months.
The markets are discounting a +7% chance of a 25 bp BOJ rate hike at the next meeting on April 28.
June COMEX gold (GCM26) on Friday closed up +16.90 (+0.36%), and May COMEX silver (SIK26) closed up +0.910 (+1.21%).
Gold and silver prices recovered from 1.5-week lows on Friday and settled higher. Friday’s weaker dollar and lower T-note yields were bullish for precious metals. Also, lower crude oil prices on Friday eased inflation expectations, which could prompt the world’s central banks to pursue easier monetary policies, a bullish factor for precious metals.
Friday’s rally in the S&P 500 to a new all-time high curbed some safe-haven demand for precious metals. Also, hawkish comments on Friday from ECB Governing Council member Peter Kazimir were bearish for precious metals when he said the Iran war might necessitate a slight interest rate increase by the ECB.
Heightened Middle East tensions are supportive of precious metals. Both the US and Iran are maintaining blockades of the Strait of Hormuz, and tensions increased after President Trump ordered the US Navy to shoot any Iranian boat laying mines in the strait.
Precious metals remain supported by uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty, which are boosting demand for precious metals as a store of value.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 4.5-month low on March 31 after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 7.25-month low on Thursday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following the recent news that bullion held in China’s PBOC reserves rose by +160,000 ounces to 74.38 million troy ounces in March, the seventeenth consecutive month the PBOC has boosted its gold reserves.
