Dollar firms on hawkish Fed bets as oil extends slide

Hawkish Fed rhetoric drove dollar strength, while crude oil continued its multi-day decline.

Hawkish Fed narrative strengthens dollar

The US dollar held firm through the session, with the dollar index trading around 100.25 after touching 100.35 in Europe, as Federal Reserve officials maintained a hawkish posture. Boston Fed President Susan Collins indicated that renewed hostilities in the Middle East were a key factor behind the Fed's rate hike last week, suggesting potential for further increases. This perspective helped the dollar trade firmer, impacting several major pairs.

• The AUD/USD reversed its earlier gains, with the firmer dollar and hawkish Fed expectations limiting its upside.
• The EUR/USD traded with a downward bias, struggling against the strong dollar as prospects of additional Fed rate hikes weighed.
• The British pound also retreated 0.17% against the dollar, losing ground as the greenback strengthened following the Fed's rate hike last week.
• The Canadian dollar came under pressure, with retreating oil prices and widening US-Canada interest rate differentials contributing to USD/CAD holding firm near the 1.4000 mark. Bank of Canada Governor Tiff Macklem, speaking during the session, said rate decisions have to look beyond the initial oil shock.
• In contrast, the Swiss franc advanced, with USD/CHF extending its retreat after climbing to 0.8263 last week.
• The yen kept sliding, with USD/JPY around 157.45, up 0.36%. A Bank of Japan rate check reported by ING briefly pushed it below 157.00, but no intervention followed, and a three-day Tokyo holiday left the currency exposed in thin liquidity.

Commodities under pressure

Crude oil prices continued their multi-day slide, marking a fourth consecutive day of losses. West Texas Intermediate (WTI) fell below $94.00 as early as the Asian session, an over one-week low, and kept sliding to around $91.90 by midday in New York, down 3.54% on the day.

• FXStreet attributed WTI's decline to reports of increased Saudi crude supplies and expectations that Middle East diplomacy could alleviate supply fears, outweighing the weekend's Houthi attacks on the Saudi capital. Brent, whose $100 test last week's wrap put upstream of everything else, fell to an 11-day low near that level — reached from above this time.
• Gold slid below $4,350, down 0.61% on the day, snapping a two-day recovery after Friday's rejection near the $4,400 mark that has capped it since last week. TD Securities noted that Commodity Trading Advisors reversed recent purchases while discretionary investors kept supporting the metal.
• Silver stalled at its 100-day average and ended the session down 0.39% at $66.03, while platinum completed a pullback and resumed its rally.

Broader market movements

Equities saw a rebound as the new week began, with the EuroStoxx50 adding 1.5% and Wall Street indices gaining between 0.9% and 1.1%.

• The New Zealand dollar languished near two-month lows against the US dollar, with FXStreet anticipating a new leg down below 0.5700, despite a slightly more optimistic market mood. NZD/USD traded slightly higher around 0.5727 in the European session.
• Standard Chartered economists put India's deficit in AI-enabling goods second only to oil as a contributor to the country's trade gap, overtaking gold — a structural drag on the rupee, which opened the session higher as oil fell.
• In Central and Eastern Europe, regional currencies, including Poland, faced additional pressure after Moody's downgraded Poland's rating to A3, according to ING.

Session snapshot and looking ahead

The session closed with the Japanese Yen on top of our minute count for a second session running, though at 21% against Friday's 25% — and it spent that session losing ground to the dollar. The dollar finished eighth of eight, on top for just 109 of the 1,437 minutes we scored — bottom of the table for the second time in six counted sessions, on the day it firmed against most of its peers. Last week's wrap asked whether the dollar could reach the top half of the table on any session; this one answered no. A currency can grind higher all week and never be the quickest mover in a single minute, which is what our index ranks. Our proprietary metrics indicated an MRS of 62, and the FSI registered 67 (Greed), reflecting an overall risk-on sentiment in broader markets. Looking ahead, traders await scheduled speeches from RBA Governor Bullock and, for a second day, ECB President Lagarde, with the Trump-Xi summit later in the week the bigger date.