The dollar index (DXY00) is down by -0.02% today. The dollar recovered from overnight losses and is little changed after crude oil prices surged more than +6% when President Trump said the US will "hit Iran hard" after a recent attack from Iran that targeted a US base in Jordan. The jump in crude prices raises inflation expectations and could prompt the Fed to tighten monetary policy, a supportive factor for the dollar. Movement in the dollar is limited ahead of the conclusion of the 2-day FOMC meeting later today when policymakers are expected to keep interest rates unchanged.
Crude oil prices jumped today after the Islamic Revolutionary Guard Corps (IRGC) said it targeted a US airbase and command center in Jordan with ballistic missiles. The IRGC also claimed to have hit and halted three tankers attempting to transit through the Strait of Hormuz. Meanwhile, the US and Saudi Arabia launched a joint attack on "Iran-aligned terrorists" in Iraq after the IRGC directed them to target US forces and Saudi energy infrastructure.
Also, diplomatic attempts to reopen the Strait of Hormuz appear to be at an impasse. Iranian Deputy Foreign Minister Gharibabadi said Oman's proposal for a route through the Strait of Hormuz, with 50% under Iran's control and 50% under Oman's, would not address Iran's concerns and that the inbound passage and part of the outbound channel must be entirely under Iran's control.
The markets are discounting a 34% probability of a +25 bp rate hike at the conclusion of today's FOMC meeting.
EUR/USD (^EURUSD) is up by +0.04% today. The euro is slightly higher today amid some dollar weakness. However, gains in the euro are limited due to today's +6% surge in crude oil prices, which is bearish for the Eurozone economy and the euro, as Europe imports most of its energy.
The German Jun import price index eased to 6.1% y/y from 6.8% y/y in May.
The markets are discounting an 89% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) is down by -0.06% today. The yen is slightly higher today after the Nikkei Stock Average dropped to a 2.25-month low, boosting safe-haven demand for the yen. Also, the yen has support from the ongoing risk of intervention by Japanese authorities to support the yen. Japanese authorities have intervened in the forex market several times in the past when the yen surpassed 160 yen/USD, as it has this week.
Gains in the yen are limited today after crude oil prices surged by more than +6%, which is negative for the Japanese economy and the yen as Japan imports more than 90% of its energy. The yen is also pressured by negative carryover from Tuesday on fiscal concerns, amid news that the Japanese government plans to cut the sales tax on food and drinks to 1% for two years. The yen continues to suffer from weak interest rate differentials, with markets discounting only a 2% chance of a +25 bp BOJ rate hike at Friday's policy meeting. The BOJ's current policy rate of 1.00% is well below the Fed's federal funds rate target of 3.50%-3.75%.
August COMEX gold (GCQ26) today is down -32.40 (-0.80%), and September COMEX silver (SIU26) is down -0.179 (-0.31%).
Gold and silver prices are under pressure today, with gold falling to a 1-week low as a +6% surge in WTI crude oil raises inflation expectations that could prompt the world's central banks to tighten their monetary policies, a bearish factor for precious metals. Also, long liquidation and position squaring are weighing on precious metals ahead of the conclusion of the 2-day FOMC meeting later today.
Losses in precious metals are limited as signs of escalation of US-Iran hostilities boosted some safe-haven demand for the metals after the Islamic Revolutionary Guard Corps said it targeted a US airbase and command center in Jordan with ballistic missiles. In response, the US and Saudi Arabia launched a joint attack on "Iran-aligned terrorists" in Iraq after the IRGC directed them to target US forces and Saudi energy infrastructure. Also, President Trump said today that the US will "hit Iran hard" after a recent attack from Iran that targeted a US base in Jordan.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 10-month low last Monday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 1-year low on July 14 from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China's PBOC reserves rose by +480,000 ounces to 75.44 million troy ounces in June, the twentieth consecutive month the PBOC boosted its gold reserves.
