[New York Gold, Bonds, Dollar] Surge in Oil Prices Drives U.S. Rates, Dollar, and Gold Prices Upward Amid Inflation Concerns

[Mexico City = Shim Young-jae, Correspondent] On the 10th (local time), U.S. Treasury yields and the dollar rose simultaneously in the New York financial market. Although last week's U.S. employment data was weaker than expected, diminishing expectations for further rate hikes by the Federal Reserve (Fed), the surge in international oil prices has reignited inflation concerns. Market attention is quickly shifting to the upcoming U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) scheduled for this week.

The gold market continued its bullish trend. With the People's Bank of China expanding its gold purchases and caution ahead of U.S. inflation data, gold prices reached their highest level in nine weeks. The dollar-won exchange rate also moved towards a weaker won. Concerns that rising oil prices due to Middle Eastern uncertainties could increase inflationary pressures in South Korea, a major oil-importing country, weighed on the won.

U.S. Treasury yields rose on the day. According to TradingView, the yield on the 10-year Treasury note increased by 0.056 percentage points to 4.705%. CNBC reported that the yield on the 30-year note rose by more than 4 basis points to 5.251%, while the 2-year yield also increased by over 3 basis points, trading at around 4.241%.

The direct background for the rise in bond yields was international oil prices. Negotiations between the U.S. and Iran have stalled, making the reopening of the Strait of Hormuz uncertain again, leading to a spike in oil prices. West Texas Intermediate (WTI) crude futures closed at $82.13 per barrel, up about 5.1%, while Brent crude rose by 5% to $87.72.

President Trump mentioned in an interview with Axios over the weekend that the U.S. is "halfway negotiating" with Iran, indicating that they are monitoring the situation. Subsequently, the U.S. and Iran presented conflicting demands regarding compensation, weakening expectations for reopening the Strait of Hormuz.

The rise in oil prices has reignited inflation concerns in the bond market. Last week's U.S. non-farm payroll data for July was significantly weaker than market expectations, reducing the urgency for further short-term rate hikes by the Fed. However, concerns have grown that a rebound in energy prices could hinder the trend of declining inflation.

The CME FedWatch tool indicates a 52% probability of a rate hike in September, down from 67% the previous week. Deutsche Bank assessed that the weak employment data has lowered the urgency for additional tightening in the short term. However, if the July CPI, set to be released on the 12th, shows renewed inflationary pressures, the outlook for September rates could change again.

The market is also paying attention to the PPI on the 13th, weekly initial jobless claims, and retail sales for July and the University of Michigan Consumer Sentiment Index on the 14th. In particular, the CPI is expected to be a key inflection point for the Fed's September policy expectations.

The dollar also rose. According to TradingView, the U.S. Dollar Index increased by 0.154 points or 0.16% to 99.495.

Last week's weak employment data is generally a factor for dollar weakness, but on this day, the rise in oil prices and inflation concerns supported the dollar. The market is factoring in a lower likelihood of further rate hikes by the Fed due to slowing employment, while still leaving open the possibility of renewed tightening expectations if inflation rebounds.

Among major currencies, the Japanese yen showed notable weakness. The yen fell by 0.84% to 159.14 per dollar, marking its largest daily drop in nearly five months. However, compared to the multi-decade low of around 164 yen recorded last month, it remains relatively strong.

As South Korea is highly dependent on oil imports, rising international oil prices could burden the trade balance and import prices. The potential for increased domestic inflationary pressures due to rising oil and energy prices is also a negative factor for the won.

In the future, the dollar-won exchange rate is likely to be influenced simultaneously by U.S. inflation data, the Fed's rate path, and international oil price trends. If the U.S. CPI comes in stronger than expected, the dollar and U.S. Treasury yields could rise again, increasing pressure on the won. Conversely, if inflationary pressures are confirmed to be easing, expectations for further tightening by the Fed may weaken, putting downward pressure on the dollar-won exchange rate.

Gold prices continued to rise, reaching $4,389.25 per ounce, up $47.73 or 1.10%. According to Reuters, spot gold was recorded at $4,376.56 per ounce, up 0.8% as of 2:45 PM, and during the day it rose to its highest level since June 5. U.S. gold futures traded at $4,419.70, up 0.5%.

The background for the strength in gold includes technical upward momentum, demand for safe-haven assets, and purchases by the People's Bank of China. The People's Bank of China expanded its gold holdings in July, with the purchase scale being the largest since October 2023.

U.S. inflation expectations are also a key variable for gold prices. According to Reuters experts, the U.S. July CPI is expected to rise by 3.4% year-on-year, slightly down from 3.5% in June.

This week, the New York bond, foreign exchange, and gold markets are likely to navigate between expectations for easing tightening due to slowing employment and inflation concerns driven by rising oil prices. Whether the CPI and PPI reinforce one signal or the other is expected to be a key variable determining the next direction for U.S. Treasury yields, the dollar, the dollar-won exchange rate, and gold prices.

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