The dollar held broad, haven-linked gains on Wednesday as a bull flattening of the yield curve coincided with falling commodity prices, soft U.S. housing data and uncertainty over progress in U.S.-Iran talks.
Metals extended losses on China demand concerns and taught Fed policy, while WTI crude slipped below $70/bbl on increased Hormuz traffic. U.S. Treasury Secretary Scott Bessent supported scaling back Fed guidance but urged openness on inflation risks while adding that maintaining dollar dominance is essential. U.S. Energy Secretary Chris Wright said 20 million barrels of crude oil exited the Strait of Hormuz in the past 24 hours, with flows still disrupted by Iranian mines but expected to continue. U.S. President Donald Trump said Iran agreed to no tolls for Hormuz transit, while Secretary of State Marco Rubio noted Iran talks will resume later this month. Israel’s defense minister said troops will stay in southern Lebanon, a hurdle for Iran-U.S. peace talks. In data, U.S. new home sales fell for a second straight month, declining 7.3% in May. The Bank of Canada's governing council agreed to keep its monetary policy nimble to respond to new U.S. trade restrictions, the impact of energy prices, or both playing out at the same time, according to the minutes of its meeting.
The dollar index held its gains after hitting a new one-year high beyond an expanding Bollinger Band, with momentum pushing it deeper into overbought territory. Dollar call buying underpinned though a dip in futures open interest suggest longs may be getting stretched. Renewed weakness in the Chinese yuan on PBOC rate cut speculation weighed on metal prices and supported the dollar. EUR/USD fell to a one-year low of 1.1325 before settling, though bearish momentum indicators and a completed head-and-shoulders top signal further downside risk. GBP/USD dipped below its lower Bollinger to a seven-month low of 1.3140, with bearish momentum on Fed-BoE divergence signaling risks toward 1.3100. USD/JPY rose on haven dollar demand and quarter-end flows, with a series of higher lows offering an upside bias toward the 161.96 2024 high despite overbought conditions and intervention risks. AUD/USD slipped as risk sentiment deteriorated and metal prices fell, with bearish position below 0.70 and its 10-day moving average signaling downside bias.
Treasury yields were down 6 to 9 basis points as the curve bull flattened. The 2s-10s curve fell about 3 basis points to +25.8bp.
The S&P 500 fell 0.27% as tech and energy shares weighed. WTI oil dropped 4%, briefly dipping below $70/bbl as gains since the Iran war outbreak have been almost entirely erased.
Gold fell 3%, silver tumbled 8% and copper slid 3% amid dollar gains and a weaker CNH.
Heading toward the close: EUR/USD -0.22%, USD/JPY +0.12%, GBP/USD -0.30%, AUD/USD -0.40%, DXY +0.20%, EUR/JPY -0.12%, GBP/JPY -0.21%, AUD/JPY -0.29%.(Editing by Burton Frierson Robert Fullem is a Reuters market analyst. The views expressed are his own)
