The dollar index (DXY00) experienced a mix of movements on Monday, starting with a morning rally followed by a decline in the afternoon. This shift came after President Trump suggested in a phone interview with CBS News that the military operation may be nearing its completion. The initial spike in oil prices above $100 per barrel provided support to the dollar, given its positive impact on Fed policy and the US economy as the world’s largest oil producer. However, oil prices retreated later in the day following G-7 finance ministers’ commitment to release strategic oil reserves if needed and amid indications from President Trump regarding the potential end of the Iran conflict.
Furthermore, the dollar’s performance was influenced by disappointing US economic data released last Friday, including a decline in February payrolls and January retail sales. This led to swaps markets pricing in a 4% chance of a -25 bp rate cut at the upcoming policy meeting on March 17-18. The outlook for interest rate differentials also weighed on the dollar, with expectations of rate cuts by the FOMC contrasted against potential rate hikes by the BOJ and ECB in 2026.
In currency pair movements, EUR/USD (^EURUSD) rose by +0.17% as the dollar weakened, with the euro benefiting from the retreat in oil prices. Swaps markets assigned a 1% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19. USD/JPY (^USDJPY) closed Monday with minimal changes, as the yen initially faced pressure from surging oil prices, given Japan’s heavy reliance on imported energy. Markets estimated a +5% chance of a BOJ rate hike at the upcoming meeting on March 19.
Additionally, precious metals experienced varied performance, with April COMEX gold (GCJ26) closing down -1.07% and May COMEX silver (SIK26) up +0.25%. Gold prices declined due to early dollar strength and reduced safe-haven demand following President Trump’s remarks on the Iran conflict. However, ongoing concerns about the prolonged US-Iran tensions supported precious metals, especially after Iran’s appointment of a new hardline supreme leader. Central bank demand for gold remained strong, with China’s PBOC increasing its gold reserves for the fifteenth consecutive month in January.
Moreover, fund demand for precious metals remained robust, with long holdings in gold ETFs reaching a 3.5-year high and silver ETFs experiencing fluctuations. These factors contributed to the overall performance of precious metals in the market.
In conclusion, the dynamics of the dollar, currency pairs, and precious metals were influenced by a combination of geopolitical tensions, economic data, and central bank actions. Traders and investors will continue to monitor these factors closely for potential market movements in the coming days.
