Dollar Falters as Oil Plunge, Easing Middle East Risks and Yen Support Shake Markets

Overview

• A surprise strong ISM manufacturing reading earlier in the week briefly strengthened the dollar by highlighting U.S. growth but did not stop the subsequent slide in risk aversion.
• WTI crude fell about 5–6%, which pushed down inflation expectations, lifted stocks and precious metals, and reduced safe-haven demand for the dollar.
• Softer U.S. reports on factory orders, job openings and construction spending plus dovish remarks from New York Fed President John Williams further pressured the currency.
• Japan’s Ministry of Finance confirmed a yen-buying operation coordinated with the U.S. Treasury and U.S. Treasury Secretary Scott Bessent pledged continued joint support for the yen, limiting dollar gains against the yen.
• Markets have repriced the odds of a 25 bp Fed hike lower while still pricing a high chance of an ECB increase and gold has steady support from falling yields and reported PBOC reserve purchases.