Dollar Index Drops as Middle East Tensions Ease and AI-Related Selloff Reverses
The ICE Dollar Index fell 0.47% to 101.75 after President Donald Trump said the risk of new attacks in the Middle East was extremely low, while risk appetite revived and equity markets rallied.
In New York foreign-exchange trading on the 9th, the dollar slipped against major currencies following remarks by President Donald Trump that the likelihood of further attacks in the Middle East was "extremely low" if negotiations to end the war with Iran progressed. The comment, given in a telephone interview with CNN, helped calm concerns about escalating regional tensions.
The ICE Dollar Index, which tracks six major currencies, was down 0.47% at 101.75 in late trading. The dollar/yen pair fell 0.41% to 157.89 yen, while the euro rose 0.64% to $1.1213. The British pound gained 0.60% to $1.34290.
The easing of geopolitical risk boosted risk appetite in other markets. North Sea Brent futures dropped $5.75, or 5.85%, to $92.57 a barrel, and U.S. WTI futures fell $3.98, or 4.38%, to $86.85. Lower energy prices reduced inflation concerns and supported equity gains, with the S&P 500 up 2.35% to 7,549.94, the Nasdaq Composite up 2.74% to 25,253.14, and the Dow Jones Industrial Average up 2.15% to 52,389.75.
Evercore chief economist Enrique Diaz-Alvarez noted that large long-dollar positions among speculators could limit further dollar gains, adding that the eurozone’s resilience may be underestimated and that the U.S. midterm elections could affect the economy. He also said AI-related investment has supported the U.S. economy but could face headwinds from political changes.
Gold prices rose alongside the weaker dollar, with the December COMEX settlement up 1% to $4,114.50 an ounce and spot gold also up 1% at $4,107.01. The People's Bank of China added about 25.8 tons of gold to its reserves in October, the largest monthly purchase in three years.
Market participants are watching the U.S. Consumer Price Index for October, due on the 10th. CME FedWatch shows an 82% probability that the Federal Reserve will raise rates at the December FOMC meeting, up from the previous week. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said, "We expect CPI to remain elevated and at a level sufficient for the Fed to continue leaning toward a December rate hike."
U.S. Treasury yields rose, with the 10-year yield climbing to 4.8779% and the 2-year to 4.5656%, narrowing the yield spread to 31.1 basis points. A recent 3-year note auction attracted mixed demand, posting a bid-to-cover ratio of 2.53 and a record 35% share awarded to direct bidders.
In equities, Nvidia fell to its lowest intraday level since March 31 after an internal investigation into possible foreign intelligence targeting of its CEO. Despite the drop, technology stocks overall continued to advance, with SlateStone Wealth partner Ken Polcari stating, "The AI growth scenario doesn't disappear," and indicating that regulatory expectations are not expected to halt AI investment.
Richmond Fed President Thomas Barkin said on the 9th that the Federal Reserve should proceed "carefully" with monetary policy in response to inflation, the primary risk, and noted that no base-case scenario has been set for the December meeting.
Analysts note that a weaker dollar benefits Japanese exporters but could raise domestic inflation through higher import prices, while lower crude prices provide a cost tailwind for Japan’s energy-import-dependent economy. Future dollar movements remain linked to the progress of Middle East diplomatic talks.