[New York Gold, Bonds, Dollar] Dollar and Gold Rise Amid Middle East Tensions... 10-Year Bonds Decline

[Mexico City = Shim Young-jae, Correspondent] On the 17th (local time), the New York financial market absorbed both the increased preference for safe assets due to the escalation of military conflict between the U.S. and Iran and the surge in international oil prices. The dollar showed weakness on a weekly basis due to the slowdown in U.S. inflation, but on this day, it rose slightly thanks to geopolitical instability and the sell-off of tech stocks. Gold prices also recovered to the $4,000 per ounce level. The U.S. Treasury market showed mixed results by maturity, with long-term rates declining and short-term rates rising.

The dollar-won exchange rate rose to the high 1480s won due to the increase in international oil prices and heightened risk aversion. Despite the Bank of Korea's interest rate hike, the rise in energy prices from the Middle East and demand for dollars limited the strength of the won.

Dollar Index Rises Slightly to 100.428... Weekly Decline of 0.2%

According to TradingView, the dollar index, which indicates the value of the dollar against six major currencies, rose by 0.032 points (0.03%) to 100.428 compared to the previous session. During the day, it fell to around 100.35 before exceeding the 100.50 mark, but later in the session, it gave back some of its gains.

The U.S. consumer and producer price indices released this week came in lower than expected, reducing the likelihood of an early interest rate hike by the Federal Reserve (Fed). However, as the conflict between the U.S. and Iran intensified and concerns about disruptions in the Strait of Hormuz grew, demand for the safe-haven dollar increased.

Elias Haddad, Global Market Strategist at Brown Brothers Harriman, stated, "The sharp decline in global stock markets centered on tech stocks and the potential disruptions in the Strait of Hormuz triggered a preference for safe assets," adding, "The dollar has recovered some of its losses this week, and global bond yields have also declined slightly."

The euro-dollar exchange rate remained stable at $1.1436, with the euro rising 0.2% on a weekly basis. The pound-dollar exchange rate recorded a 0.2% decline at $1.3455, but thanks to easing concerns about the UK’s finances, it maintained a weekly upward trend for three consecutive weeks.

The Australian dollar fell 0.23% to $0.6980 amid risk aversion. The dollar-yen exchange rate hovered around 162.44 yen, nearing a 40-year low of 162.84 yen. The Japanese government has repeatedly warned of the possibility of foreign exchange market intervention, increasing market vigilance.

Sean Osborne, Chief Foreign Exchange Strategist at Scotiabank, assessed that considering the Japanese government's remarks about "decisive action," the possibility of market intervention seems to be approaching again. However, he added that it remains uncertain whether actual intervention would fundamentally change the flow of the yen.

The likelihood of a rate hike in July in the U.S. has decreased from 25% last week to 14%. The market reflects the possibility of an additional rate hike of about 30 basis points by December. The lowered expectations for short-term hikes have limited the upside for the dollar, but the situation in the Middle East and rising oil prices have made the inflation outlook uncertain again.

Dollar-Won Rises by 9 Won to 1487.46 Won... Weakness of Won Amid Oil Price Surge

The dollar-won exchange rate rose by 9 won (0.61%) to 1487.46 won. During the day, the exchange rate started in the 1470s won and expanded its gains, briefly reaching around 1490 won. Although it gave back some of its gains later, it finished trading in the high 1480s.

The won recently showed strength, reaching around 1480 won per dollar, the highest level since mid-May, but faced renewed weakness due to tensions in the Middle East and rising international oil prices. South Korea's high dependence on energy imports means that rising oil prices can increase the burden on the trade balance and inflation, negatively affecting the value of the won.

Brent crude oil surpassed $85 per barrel, marking the largest weekly increase since April. In the New York market, West Texas Intermediate crude for August delivery closed at $82.49 per barrel, up 4.48%, while Brent crude rose 4.59% to $88.10.

The Bank of Korea decided to raise the benchmark interest rate by 0.25 percentage points to 2.75% this week. This was interpreted as a measure to lower inflationary pressures and defend against the weakness of the won, marking the first hike since early 2023. However, the increased volatility in tech stocks and geopolitical tensions have strengthened risk aversion, limiting the effect of the rate hike on the strength of the won.

In the short term, the dollar-won exchange rate is likely to react sensitively to the energy supply situation in the Strait of Hormuz and any further increases in international oil prices. While the slowdown in U.S. inflation may limit the rise of the dollar, if the situation in the Middle East prolongs, the demand for safe assets and the burden of oil imports may keep the exchange rate at a high level.

U.S. 10-Year Bond Yield at 4.549%... Long-Term Bonds Decline, Short-Term Bonds Rise

The U.S. Treasury market showed mixed results by maturity. According to TradingView, the yield on the 10-year U.S. Treasury bond fell by 0.008 percentage points to 4.549% compared to the previous session.

According to CNBC's tally, the yield on the 30-year bond fell by about 3 basis points to 5.067%. In contrast, the yield on the 2-year bond, which is sensitive to the Fed's short-term policy rate outlook, rose by more than 2 basis points to 4.179%.

Long-term yields fell due to safe-haven buying amid geopolitical instability and the slowdown in inflation indicators released this week. Conversely, short-term yields reflected concerns that the surge in international oil prices could raise inflation again and prolong the Fed's tightening stance.

The U.S. consumer sentiment index for July was 54.4, exceeding the market expectation of 50.5. The weekly initial jobless claims also came in at a seasonally adjusted 208,000, lower than expected, indicating that the U.S. economy continues to show resilience despite high interest rates and inflationary pressures from the war.

Joanne Hsu, director of the University of Michigan's consumer survey, noted that the improvement in consumer sentiment was broadly observed across age, income, asset levels, and political affiliations. However, she pointed out that if the recent decline in gasoline prices reverses, it may be difficult to maintain the upward trend in consumer sentiment.

In the future, the U.S. Treasury market may experience increased volatility depending on the situation in the Middle East and the trend of international oil prices. If geopolitical risks increase, safe-haven buying may flow into long-term Treasuries, but if rising oil prices stimulate inflation concerns, short-term yields may remain elevated.

Gold Rises to $4018.44... Demand for Safe Assets Recovers $4000 Level

Gold prices rebounded due to demand for safe assets. Gold prices rose by $40.858 (1.03%) to $4018.44 per ounce compared to the previous session. During the day, it fell below $3970 but quickly rebounded to around $4020.

According to Reuters, August futures for U.S. gold closed at $4018.80, up 0.7%. However, on a weekly basis, it fell by about 2.6%, marking the largest drop in six weeks.

Chris Gaffney, head of global markets at EverBank, cited the strong dollar and global inflation concerns as the main reasons for the recent decline in gold prices. He explained that the expectation of rising global interest rates due to higher oil prices has diminished the investment appeal of gold, which does not pay interest.

Gold is typically considered an asset that defends against geopolitical risks and inflation, but during periods of rising interest rates, the cost of holding it increases. The conflict between the U.S. and Iran has stimulated safe-haven buying, but at the same time, it has raised oil prices, increasing the likelihood of further tightening by the Fed. These two factors have collided, causing gold prices to rise on a daily basis but fail to escape weakness on a weekly basis.

Goldman Sachs analyzed that the proportion of gold in private investors' portfolios remains low, suggesting that geopolitical tensions, including the situation in Iran, could promote gold diversification investments among individuals and institutions beyond central banks.

Spot silver recorded a 1% increase at $56.06 per ounce. Platinum traded down 1.4% at $1595.64, while palladium remained flat at $1249.63. Silver, platinum, and palladium are all expected to decline on a weekly basis.

The New York foreign exchange, bond, and gold markets are expected to be influenced by the spread of the Middle East conflict and the trend of international oil prices. If geopolitical tensions do not ease, demand for safe assets like the dollar and gold may continue. However, if rising oil prices heighten inflation and interest rate concerns, the upward potential for long-term Treasuries and gold may be limited. The won is also expected to show a flow more sensitive to global risk aversion and energy import burdens than the tightening effects of the Bank of Korea.