[New York Gold, Bonds, Dollar] Oil Prices Drop, US Treasury Yields Fall, Gold Prices Rise... Dollar Remains Strong

[Mexico City = Shim Young-jae, Correspondent] The New York financial market showed mixed trends across assets due to the situation in the Middle East and fluctuations in international oil prices. As the possibility of renewed negotiations between the US and Iran was mentioned, international oil prices plummeted, leading to a decline in US Treasury yields and a slight rebound in gold prices. In contrast, the dollar continued its weekly strength based on a reassessment of the Federal Reserve's (Fed) interest rate hike prospects and the weakness of the yen. The dollar-won exchange rate fell by 1% from the previous session to around 1459 won.

On the 24th (local time), the dollar index recorded 101.138, up 0.040 points (0.04%) from the previous session. The spot price of gold rose by $3.929 (0.10%) to $4052.600 per ounce. The dollar-won exchange rate showed a decrease of 14.71 won (1.00%) to 1459.42 won. The yield on the US 10-year Treasury bond fell by 1.8 basis points to 4.681%.

US Treasury yields generally fell across all maturities as the decline in international oil prices coincided with signs of slowing US economic indicators.

The yield on the 10-year Treasury bond recorded a drop of over 2 basis points to 4.681%. The previous day, it had surpassed 4.7%, reaching its highest level since January 15, 2025, but the sharp drop in oil prices eased inflation concerns somewhat. The yield on the 2-year Treasury bond fell by more than 2 basis points to 4.337%, while the yield on the 30-year Treasury bond decreased by about 1 basis point to 5.161%.

Additionally, the 1-month yield fell by 1.8 basis points to 3.772%, and the 1-year yield decreased by 0.4 basis points to 4.133%. The 3-month yield rose by 1.5 basis points to 3.912%, while the 6-month yield was recorded at 4.05%, down 1 basis point.

The direct background for the decline in yields was the possibility of renewed negotiations between the US and Iran. Reuters reported that Pakistan, with China's support, is seeking to resume dialogue aimed at ending the US-Iran conflict in the Middle East. Following news that the Pakistani Foreign Minister discussed related plans with Chinese officials, concerns about disruptions in oil supply eased, leading Brent crude to trade down nearly 4% at $96.78 per barrel. West Texas Intermediate crude fell by 3% to $89.31 per barrel.

Joanne Bianco, senior investment strategist at BondBloxx, assessed that the drop in oil prices has alleviated some of the upward pressure on recent inflation and interest rate forecasts. She explained that long-term Treasuries are particularly sensitive to changes in the Middle East situation and energy prices.

However, later in the session, oil prices rebounded slightly from their lows. The New York Times reported that President Trump is meeting with senior aides and cabinet members to discuss whether to expand US attacks on Iran. President Trump had previously indicated that he was considering a large-scale attack on Iran and was nearing a decision.

The US S&P Global Purchasing Managers' Index for July also fell short of market expectations at 53.8, below the forecast of 54.4, supporting the decline in interest rates. Although the index remains above 50, indicating an expansion phase, the growth rate was weaker than expected.

The dollar remained stable on the day but recorded its largest weekly increase since mid-June. The dollar index rose to 101.138, up 0.04%, with a weekly increase of about 0.7%, the largest in five weeks.

The background for the dollar's strength is the recent surge in oil prices due to the Middle East war, which has increased inflation pressures in the US. The market has strengthened expectations that the Fed may delay interest rate cuts or raise rates further. The fact that the US economy is relatively less vulnerable to energy price shocks compared to Europe and Japan has also supported the dollar.

The dollar-yen exchange rate fell by 0.02% to 163.81 yen, but increased by about 0.9% on a weekly basis. The previous day, it had risen to 163.98 yen, marking its highest level since November 1986. Despite verbal interventions from the Japanese government, the yen has not escaped its lowest level in 40 years.

Japanese Finance Minister Katsunobu Kato reiterated that he is prepared to take necessary measures in the foreign exchange market, but the market's response has been limited. The US Treasury has also pressured the Bank of Japan to consider the need for interest rate hikes, warning that excessive exchange rate fluctuations are undesirable.

Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie Group, assessed that in a high oil price environment, the low-interest currency yen is most vulnerable to deteriorating trade conditions. He explained that it is a natural flow for speculative funds to target the yen for selling in an environment of rising oil prices following the Iran war.

The market is not reflecting the possibility of the Bank of Japan raising rates at its meeting next week. According to LSEG data cited by Reuters, the likelihood of a rate hike at the Bank of Japan's next meeting has completely evaporated.

The euro recorded a decline of 0.06% to $1.1369, falling about 0.6% on a weekly basis. The European Central Bank has kept rates unchanged but left the door open for a hike in September. Philip Lane, chief economist at the European Central Bank, assessed that the current inflation shock is at a moderate level and that a certain policy response is needed, but aggressive measures are not necessary.

The dollar-won exchange rate recorded a decrease of 14.71 won (1.00%) to 1459.42 won, down from the previous session's close of 1474.13 won. The exchange rate started near 1474 won in the early session and quickly fell through Asian and European trading, moving around 1460 won thereafter.

Despite the dollar index showing a slight increase, the significant drop in the dollar-won exchange rate is interpreted as being positively influenced by expectations of easing tensions in the Middle East and the sharp decline in oil prices. South Korea's high dependence on energy imports means that falling oil prices can raise expectations for improvements in trade balance and inflation burdens. The slight easing of risk-averse sentiment also supported the strength of the won.

The dollar-won exchange rate has fallen by 1.29% as of the 5th and decreased by 4.71% over the past month. However, since the beginning of the year, it has risen by 1.16% and is up 6.17% on a yearly basis.

Gold prices rose by 0.10% to $4052.600 per ounce. August gold futures traded at $4070.80, up 0.5% according to Reuters.

Gold rebounded after a nearly 2% drop the previous day, influenced by bargain hunting and short position covering. On a weekly basis, it rose by about 0.9%. The decline in international oil prices below $100 has also positively affected gold prices by easing upward pressure on interest rates.

However, high interest rates and oil price volatility have limited the extent of gold's rise. Gold is a non-yielding asset, so if long-term interest rates remain high, its relative attractiveness may decrease. The market sees a high likelihood that the Fed will keep rates unchanged at its meeting next week, but the possibility of a rate hike in September is reflected at about 82%.

Tai Wong, a metals trader, assessed that gold and silver are finding support around $3950 and $55 per ounce, respectively. He noted that if the war escalates rapidly, there could be liquidation of positions, but if the Fed clearly keeps rates unchanged next week, there is potential for gold prices to rise again.

ING analysts diagnosed that the recent strength in gold has primarily been driven by bargain hunting and short covering. They cautioned that high oil prices and high Treasury yields could limit rebounds, assessing that $4000 per ounce is a key support level in the short term.

Looking ahead, the market's focus is expected to shift towards the situation in the Middle East and the Fed meeting. If the possibility of negotiations between the US and Iran materializes, oil prices and long-term yields could stabilize further. Conversely, if President Trump decides to expand attacks on Iran, oil prices and the dollar could rise again, and the volatility of Treasury yields and gold prices could increase.

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