Dollar drops on weak data, Middle East risk lifts oil and gold

The dollar continues its retreat on softer US data, while geopolitical tensions fuel gains in oil and gold, even as yen shows intraday strength.

Market themes

• The dollar has fallen to two-month lows, extending yesterday's decline, as weaker US data has reduced the likelihood of Federal Reserve rate hikes. However, some of its losses are limited by increasing oil prices. US Treasury bond yields are rising, with 30-year bonds reaching a 2007 high.
• Gold gained momentum above $4,400 — the ceiling it cleared on Thursday, lost on Friday and was still testing yesterday — boosted by the softer US data and Middle East risk headlines. WTI crude oil climbed from around $81.50 to near $84.00 after US President Donald Trump said he is not seeking an extension of the memorandum of understanding with Iran — an escalation of the same Washington-Tehran standoff that left yesterday's talks to reopen the Strait of Hormuz deadlocked.
• Our strength gauge ranks the Japanese yen as the strongest currency today, though that strength is relative: it is riding a soft dollar rather than domestic demand, and Japan's rising import bill keeps working against it. The Canadian dollar is the weakest currency, despite the rise in oil prices.
• The euro pushed above 1.1600 early on, slipped back below it as US dollar selling pressure eased, and by the close was struggling at that level after diving below its 100-day SMA. The Australian dollar rose on the back of the weaker US dollar, while the New Zealand dollar stagnated amid a slowing China, which introduced a plan to boost consumption.
• The pound touched three-month highs at 1.3570 on the broad dollar weakness but could not hold them into the close. FXStreet analysts note GBP/JPY bulls have recovered the 50-day SMA, with 217.00 as a level to watch. For USD/CHF, bulls need a break above 0.8200 to regain momentum.

Market metrics and sentiment

• The MRS stands at 59, indicating a moderate market readiness. Our CTS is high at 79, suggesting strong carry trade appeal. The FSI is at 70 (Greed), reflecting a prevailing optimistic sentiment in the market.

Key events today

• GBP · Claimant Count Change: SCHEDULED, forecast 16.5K (previous 6.7K)
• GBP · Average Earnings Index 3m/y: SCHEDULED, forecast 4.0% (previous 4.3%)