The dollar index (DXY00) on Wednesday rose to a 1-week high and finished up by +0.20%. The dollar found support on Wednesday as the escalation of the US-Iran war boosted safe-haven demand for the dollar. Iran seized two ships on Wednesday in the Strait of Hormuz for "endangering maritime security," and the UK Navy said Islamic Revolutionary Guard Corps gunboats fired upon two other cargo ships.
Gains in the dollar were limited on Wednesday after a rally in stocks reduced liquidity demand for the dollar, following President Trump's announcement that he will indefinitely extend the ceasefire with Iran.
Planned talks between the US and Iran were called off late Tuesday, and President Trump said he will extend the ceasefire with Iran up to five days, and the US naval blockade of the Strait of Hormuz will remain. Iran said it will not reopen the strait, or restart peace talks until the US blockade ends.
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 Wednesday fell to a 1-week low and finished down by -0.29%. The euro came under pressure on Wednesday after the Eurozone Apr consumer confidence index fell more than expected to a 3.25-year low. Also, dovish comments from ECB Governing Council members Kazaks and Simkus weighed on the euro, as they said the ECB should keep monetary policy unchanged in the near term. In addition, Wednesday's action by the German government to cut its 2026 GDP forecast to 0.5% from 1.0% is negative for the euro. Finally, Wednesday's +2% rally in crude oil prices is negative for the Eurozone economy and the euro, as Europe imports most of its energy.
The Eurozone Apr consumer confidence index fell -4.2 to a 3.25-year low of -20.6, weaker than expectations of -17.2.
The German government cut its 2026 GDP forecast to 0.5% from 1.0% because of the US-Iran war.
ECB Governing Council member Martins Kazaks said there is no urgency for the ECB to raise interest rates from 2%, as the current data does not yet justify a move.
ECB Governing Council member Gediminas Simkus said the ECB shouldn't raise interest rates at its April meeting, but he can't rule out a rate hike later this year.
Swaps are discounting a 13% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
USD/JPY (^USDJPY) on Wednesday rose by +0.07%. The yen gave up an early advance on Wednesday and turned lower after crude oil prices rose more than +3%, which is bearish for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs. Also, Wednesday's rally in the Nikkei Stock Index to a new record high reduced safe-haven demand for the yen.
The yen initially moved higher on Wednesday on better-than-expected Japanese trade news. Also, lower T-note yields on Wednesday were supportive of the yen.
Japanese trade news was better than expected, with Mar exports rising 11.7% y/y, stronger than the 11.0% y/y expected. Also, Mar imports rose +10.9% y/y, stronger than expectations of +7.0% y/y and the biggest increase in 14 months.
The markets are discounting a +9% chance of a 25 bp BOJ rate hike at the next meeting on April 28.
June COMEX gold (GCM26) on Wednesday closed up +33.40 (+0.71%), and May COMEX silver (SIK26) closed up +1.473 (+1.93%).
Gold and silver prices moved higher on Wednesday amid increased safe-haven demand over concerns about the escalation of the US-Iran war. Iran on Wednesday seized two ships in the Strait of Hormuz for "endangering maritime security," and the UK Navy said Islamic Revolutionary Guard Corps gunboats fired upon two other cargo ships.
Limiting gains in precious metals on Wednesday was the rally in the dollar index to a 1-week high. Also, Wednesday's stock rally curbed some safe-haven demand for precious metals. In addition, Wednesday's +3% surge in crude oil prices boosts inflation expectations and may force the world's central banks to tighten monetary policy, a bearish factor for precious metals. A bearish factor for industrial metals demand and silver prices was the German government's decision to cut its 2026 GDP forecast to 0.5% from 1.0%.
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-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-month low on March 27 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.
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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