The dollar index (DXY00) today is up by +0.08%. The dollar is climbing today on ramped-up tensions in the Middle East after Iran on Saturday said the Strait of Hormuz was closed for shipping following a refusal by the US to lift a naval blockade of Iran’s vessels. Also, the US Navy fired upon and boarded an Iranian-flagged cargo ship in the Gulf of Oman, the first seizure in the US blockade of the Strait of Hormuz. Falling stocks today are also boosting liquidity demand for the dollar. In addition, today’s +5% jump in WTI crude oil prices raises inflation expectations, which are hawkish for Fed policy and supportive of the dollar.
The dollar fell back from its best level today after the New York Post reported that Vice President Vance is on his way to Pakistan for talks with Iran, and that President Trump is open to meeting with Iranian leaders.
The UK reported Saturday that a tanker was approached by Iranian gunboats off the coast of Oman before being fired at, and an unknown projectile hit a container ship in a separate incident. India also said some of its ships were fired upon. A US-Iran ceasefire is due to expire at the end of Tuesday, and it’s unclear whether that truce will be extended, or whether talks between US and Iranian officials will go ahead later this week.
Swaps markets are discounting the odds at 1% for a +25 bp rate hike at the April 28-29 FOMC meeting.
The dollar continues to be undercut by a poor 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) today is up by +0.08%. The euro is slightly higher today and is garnering support after German Mar producer prices posted their biggest increase in 3.5 years, a hawkish factor for ECB policy. Gains in the euro are limited due to today’s +5% jump in crude oil prices, which is negative for the Eurozone economy and the euro, as Europe imports most of its energy.
German Mar PPI rose +2.5% m/m, stronger than expectations of +1.4% m/m and the largest increase in 3.5 years.
Swaps are discounting a 8% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
