The dollar fell against all major currencies on Monday following comments made by US President Donald Trump in an interview with CBS, and remains under pressure today. Trump stated that the conflict with Iran is nearing its end, and that progress in the US is far faster than the initial estimate of 4-5 weeks.



International oil prices fell sharply, with US WTI crude oil dropping to a low of $81.30 per barrel during the day; US Treasury yields opened lower today after rising yesterday. Easing expectations eased inflation concerns, prompting investors to revise their bets on a Federal Reserve rate cut. According to federal funds rate futures, the market is currently pricing in a rate cut of approximately 43 basis points for the year, up from about 35 basis points in early trading on Monday.

Nevertheless, peace is not a certainty. Trump also warned that attacks could escalate if Iran continues to block the Strait of Hormuz and disrupt global oil supplies. The Iranian Revolutionary Guard responded that it would not allow "a single drop of oil" to pass through the Strait of Hormuz if the United States and Israel did not compromise, and emphasized that the end of the conflict would be up to Iran.

This means that the ceasefire expectation could easily fail, and market trends could quickly reverse again.

Awaiting US CPI and PCE inflation data

Besides the situation in the Middle East, investors will also focus on the economic calendar. After last Friday's weaker-than-expected February non-farm payroll data, market attention has shifted to tomorrow's US February CPI data and this Friday's PCE data. If inflation remains stubborn amid the ongoing conflict, traders may again postpone their expectations of interest rate cuts, thereby pushing the dollar to resume its upward trend.

US stocks rebounded on ceasefire expectations, and gold rose.

All three major U.S. stock indexes rebounded, with the Nasdaq, dominated by technology stocks, leading the gains. This optimism carried over into Asian trading today, with China's Shenzhen Component Index rising about 2% and South Korea's KOSPI surging over 5%. U.S. stock futures also rose, suggesting the optimistic trend will continue at the open.

The stock market appears to be Trump's Achilles' heel. Even if the conflict doesn't truly end in the short term, another sharp drop in the US stock market could ultimately force him to end the conflict. After all, this round of market decline may be one of the reasons he stated that the conflict is "basically over."

Gold rebounded after finding support near the psychological level of $5,000, as expectations of interest rate cuts reignited. Even if the situation in the Middle East escalates again, inflation concerns resurface, and the dollar regains its upward momentum, the positive effect of war on the dollar is likely to gradually weaken once market pricing in interest rate paths stabilizes. At that point, gold will once again play its safe-haven role. If gold prices break through $5,200, it would signify a breakout from the sideways trading range since March 3rd, and bulls could potentially challenge the historical high of $5,598 reached on January 29th.

The Japanese yen and Australian dollar were supported by economic data.

In other currencies, a weaker US dollar coupled with Japan's upward revision of its fourth-quarter GDP data benefited the yen. The USD/JPY pair fell to around 157.30, somewhat easing market concerns about Japanese intervention in the foreign exchange market; the market currently expects a near 50% probability of the Bank of Japan raising interest rates in April. The Australian dollar strengthened further, boosted by improved Chinese trade data.