The dollar index (DXY00) on Monday rose by +0.05%.  The dollar was supported on Monday by increased safe-haven demand after the US and Iran failed to reach terms to end the war.   Also, Monday's +2% jump in crude oil prices boosted inflation expectations and may prompt the Fed to tighten monetary policy, a supportive factor for the dollar.

Gains in the dollar were limited after the US Apr existing home sales rose less than expected. Also, strength in the Chinese yuan weighed on the dollar after the yuan rallied to a 3-year high on Monday.  In addition, Monday's rally in the S&P 500 to a new record high has curbed liquidity demand for the dollar. 

US Apr existing home sales rose +0.2% m/m to 4.02 million, weaker than expectations of 4.05 million.

In the latest developments in the Middle East, President Trump and Iran rejected each other's latest peace proposals to end the 10-week conflict.  Iran offered to transfer some of its stockpile of highly enriched uranium to a third country, but rejected the idea of dismantling its nuclear facilities. Iran also demanded a lifting of the US naval blockade and sanctions relief, while maintaining a degree of control over traffic through the Strait of Hormuz.  President Trump said Iran's latest peace proposal was "totally unacceptable."

Swaps markets are discounting the odds at 5% for a 25 bp rate cut at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) on Monday fell by -0.09%.  The euro was under pressure on Monday amid the +2% increase in crude oil prices, which is negative for the Eurozone economy and the euro, as Europe imports most of its energy.  Losses in the euro were limited after ECB Governing Council member Martin Kocher said the ECB will be forced to raise interest rates unless the situation around energy prices improves significantly. 

ECB Governing Council member Martin Kocher said, "If the situation around energy prices does not improve significantly, an interest rate hike will be unavoidable in the near future." 

Swaps are discounting an 84% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.

USD/JPY (^USDJPY) on Monday rose by +0.35%.  The yen was under pressure on Monday from a 2% rally in crude oil prices, which is negative for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs.  Also, higher T-note yields on Monday were bearish for the yen.

The markets are discounting a +73% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.

June COMEX gold (GCM26) on Monday closed down -2.00 (-0.04%), and July COMEX silver (SIN26) closed up +5.083 (+6.29%).

Gold and silver prices settled mixed on Monday, with silver prices soaring to a 2-month high.   Gold prices gave up an early advance on Monday and turned lower after the dollar recovered from early losses and moved higher.  Also, higher global bond yields on Monday were bearish for gold prices.  In addition, Monday's +2% increase in crude oil prices boosts inflation expectations, potentially prompting the world's central banks to tighten monetary policy, a bearish factor for precious metals.  Finally, hawkish comments on Monday from ECB Governing Council member Martin Kocher weighed on gold when he said the ECB will raise interest rates in the near future if the energy price situation does not improve.

Precious metals have safe-haven support after the US and Iran failed to come to an agreement to end the war, which could lead to renewed hostilities in the Middle East.  Silver prices soared on Monday as signs of economic growth support industrial metals demand, following China's Apr exports and imports, which rose more than expected.  Silver prices also have carryover support from Monday's rally in copper prices to a 3.5-month high. 

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 5-month low on March 31 after climbing to a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to a 9-month low last Tuesday after rising to a 3.5-year high on December 23.

Strong central bank demand for gold is supportive of gold prices, following last Thursday's news that bullion held in China's PBOC reserves rose by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has boosted its gold reserves.

Chinese trade news was better than expected, a positive factor for global growth and industrial metals demand.  China Apr exports rose +14.1% y/y, stronger than expectations of +8.4% y/y.  Apr imports rose +25.3% y/y, stronger than expectations of 20.0% y/y.