The dollar index (DXY00) traded higher during the morning on Monday but then fell after President Trump told CBS News in a phone interview that “I think the war is very much, very much done” and that the military operation is “very far” from its 4-5 week time frame.
The dollar had initially seen support from oil prices above $100 a barrel on Monday, which was hawkish for Fed policy. Also, higher oil prices are good for the dollar because the US is the world’s largest oil producer. However, oil prices rallied after G-7 finance ministers pledged to release strategic oil reserves if needed and after President Trump appeared to believe the Iran war would end soon.
The dollar continued to be weakened by last Friday’s weak US economic news, which included a -92,000 decline in US February payrolls and a -0.2% m/m decline in US January retail sales.
Exchange markets are discounting odds of a -25 bp rate cut at the next policy meeting on March 17-18 at 4%.
The dollar continues to decline due to a weak 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) rose +0.17% on Monday as the dollar retreated. The euro also recovered as oil prices retreated from early highs. The Eurozone economy is heavily dependent on imported oil and natural gas.
Swaps discount 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 its first push due to rising oil prices as Japan’s economy becomes more dependent on imported energy.
Markets are discounting a +5% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) closed at -55.0 (-1.07%) on Monday, and May COMEX silver (SIK26) closed at +0.212 (+0.25%).
Gold prices edged lower on Monday as the dollar eased and safe-haven demand eased after President Trump appeared to be ending the war with Iran soon.
Still, the precious metal has fundamental support for safe-haven demand linked to concerns that the US-Israeli war on Iran would escalate. Iran’s Council of Experts this weekend elected hardliner Mojtaba Khamenei, the son of Ayatollah Ali Khamenei, as Iran’s new Supreme Leader. President Trump said he was “not happy” with the new leader’s choice.
