[New York Gold, Bonds, Dollar] Oil Prices Drop, Dollar and Interest Rates Fall... Gold Price Reaches $4,070 per Ounce

[Mexico City = Shim Young-jae, Correspondent] The New York financial market moved based on the possibility of reopening the Strait of Hormuz and the sharp drop in international oil prices. As concerns over oil supply disruptions eased, U.S. Treasury yields fell, and the dollar showed weakness against major currencies. Gold prices rose, buoyed by expectations of easing inflationary pressures and declining interest rates.

However, the dollar-won exchange rate rose slightly to the 1,429 won range despite the global dollar weakness. Following the joint foreign exchange market intervention by the U.S. and Japan, volatility in the yen increased, which is interpreted as limiting the strength of the won amid overall uncertainty in Asian currencies.

U.S. Treasury Yields Fall Sharply Amid Expectations of Hormuz Strait Negotiations

U.S. Treasury yields fell across the board as international oil prices plummeted by over 5%.

On the 4th (local time), TradingView reported that the yield on the 10-year U.S. Treasury note fell by 0.061 percentage points to 4.615%.

According to CNBC, the yield on the 2-year U.S. Treasury note fell by 0.062 percentage points to 4.194%, while the 30-year note yield decreased by 0.057 percentage points to 5.172%. The 1-year yield dropped to 3.999%, down by 0.059 percentage points.

The direct background for the decline in yields was the sharp drop in international oil prices. U.S. Treasury Secretary Scott Vessenet stated in an interview with CNBC that negotiations with Iran are ongoing and that an agreement to reopen the Strait of Hormuz could be reached on the 4th or 5th local time.

Secretary Vessenet mentioned, "We are in talks with Iran," referring to the possibility of an agreement towards reopening the strait and normalizing disputes. As a result, West Texas Intermediate crude futures traded down 5.69% at $75.77 per barrel, while Brent crude fell 5.26% to $79.36 per barrel.

As expectations for the normalization of oil transport through the Strait of Hormuz increased, concerns about energy-driven inflation eased. The yield on the 30-year U.S. Treasury note, which had risen to its highest level since 2007 due to recent increases in international oil prices, also turned downward on this day.

However, there are concerns that inflationary pressures will not disappear immediately. Tony Miano, a global bond analyst at Wells Fargo Investment Institute, explained that even if oil transport resumes, it will take time for market supply and demand to stabilize, and consumers may experience a delay in the drop in gasoline prices.

He noted that while price pressures in the energy sector may ease, broad inflation is unlikely to be resolved in the short term, suggesting that further declines in U.S. Treasury yields may also be limited.

Dollar Index Falls to 99.549... Yen Intervention Effects Persist

The dollar fell against major currencies due to the decline in international oil prices and the weakness in U.S. Treasury yields.

According to TradingView, the dollar index closed at 99.549, down 0.101 points (0.10%) from the previous session. It fluctuated around 99.70 during the day but widened its decline as New York trading progressed.

The euro rose 0.20% against the dollar to $1.1531, while the British pound traded up 0.13% at $1.3451. The dollar also fell 0.14% against the Swiss franc to 0.8092 francs.

Another key variable in the foreign exchange market was the yen. The yen fell 0.38% to 157.79 yen per dollar but retained most of the gains seen after the joint market intervention by the U.S. and Japan. The yen had risen as much as 5% over the past three trading days, reaching a three-month high of 155.20 yen per dollar the previous day. Compared to the 40-year low of 163.99 yen recorded in July, it remains strong.

Axel Merk, Chief Investment Officer at Merk Investments, assessed that the joint intervention by the U.S. and Japan sent a signal to market participants not to excessively increase short positions in the yen.

Analysts like Daniel von Allen from TS Lombard noted that while short positions in the yen remain high, the possibility of further intervention by U.S. and Japanese authorities has increased the risks associated with such trades.

However, caution persists regarding the medium- to long-term direction of the yen. Analysts like Ishaan Gurnani from BNP Paribas stated that despite the unusual nature of the joint intervention, the fundamental weak conditions for the yen have not completely changed, predicting that the dollar-yen exchange rate could be higher at the end of the year than it is now.

Dollar-Won Exchange Rate at 1,429.55 Won... Slight Increase Despite Global Dollar Weakness

The dollar-won exchange rate rose slightly to 1,429.55 won, up 0.81 won (0.06%) from the previous day, despite the global dollar weakness.

The exchange rate fluctuated significantly, dropping to the 1,421 won range before rebounding to around 1,436 won. It later moved in the 1,429 won range during the latter part of New York trading.

Looking solely at the decline in the dollar index, factors favoring the strength of the won were predominant, but volatility in the Asian foreign exchange market increased following the yen intervention, and caution ahead of U.S. employment data also limited the strength of the won. The won has shown a 0.94% appreciation over the last five trading days, but on a yearly basis, it has recorded a 2.94% depreciation against the dollar.

The market believes that if the U.S. employment data comes out stronger than expected, concerns about tightening by the Federal Reserve (Fed) may resurface, limiting the downward trend of the dollar-won exchange rate. Conversely, if employment slows and wage pressures ease, U.S. Treasury yields and the dollar may fall further, allowing the won to strengthen.

Gold Prices Rise 0.57%... Reflecting Oil Price Drop and Easing Rate Pressures

Gold prices rose, supported by the decline in international oil prices and the weakness in U.S. Treasury yields. It traded at $4,077.568 per ounce, up $22.978 (0.57%) from the previous session. During the day, it briefly surpassed $4,100 per ounce. According to Reuters, U.S. gold futures rose 1.5% to $4,152.60.

As inflationary pressures ease due to falling oil prices, the need for the Fed to raise rates further may diminish. Gold, which does not yield interest, tends to become more attractive for investment when market interest rates fall and the dollar weakens.

Bart Melek, Head of Global Commodity Strategy at TD Securities, stated that the drop in oil prices was one of the key factors supporting gold prices and also influenced rate expectations through short-term rate declines.

However, the possibility of tightening by the Fed has not completely disappeared. John Williams, President of the New York Federal Reserve Bank, expressed expectations that inflation will gradually ease but noted that if price pressures do not decrease, the Fed may consider raising rates.

The market reflects a roughly 57% probability of a rate hike at the September Federal Open Market Committee meeting. Investors are expected to gauge the Fed's next moves based on the ADP private employment report due on the 5th and the U.S. non-farm payroll report scheduled for the 7th.

Ross Norman, an independent commodity analyst, suggested that if tensions surrounding Iran ease, expectations for a recovery in industrial demand could grow, indicating that the rise in metals reflects both the easing of geopolitical risks and the outlook for physical demand.

The New York financial market is expected to closely monitor developments in Middle Eastern negotiations and trends in international oil prices for the time being. If the reopening of the Strait of Hormuz becomes a reality, additional downward pressure may be exerted on Treasury yields and the dollar, while a favorable environment for gold may continue. However, if U.S. employment data comes out stronger than expected, concerns about Fed tightening may resurface, and the trends observed in the bond and foreign exchange markets on that day could be reversed.