The US dollar breaks down, commodities surge

The breaking of the dollar has triggered a collective rebound in commodities, with both precious metals and non-ferrous metals rising.

The final GDP data for the U.S. in the first quarter and new home sales data released on Thursday were both weak, raising expectations for interest rate cuts. Market data shows that the probability of a rate cut in July has risen to 27%, and in September it is as high as 84%.

Overnight, the dollar index fell to its lowest level since March 2022, triggering a comprehensive rebound in the commodities market.

The dollar index has once again fallen below the 98 mark, approaching its low for the year.

The weakening dollar has directly boosted the attractiveness of dollar-denominated commodities. Gold continues to rise, breaking above $3,300 per ounce.

Copper prices on the Shanghai Stock Exchange rose 0.3% to 78,820 yuan per ton, and copper prices in the London market also recorded gains. Prices of non-ferrous metals such as aluminum, zinc, and nickel have generally risen.

Analysts expect that this round of commodity rebound may just be beginning, with a shift in Federal Reserve policy and further depreciation of the dollar providing stronger upward momentum for commodities.

Why did the dollar break below the 98 mark?

The decline of the dollar index is mainly due to two factors.

Wall Street Journal previously cited an article stating that firstly, the strong rebound of the euro. Benefiting from the ceasefire agreement between Israel and Iran, the euro rebounded to around 1.1580 on Monday evening. More importantly, NATO member countries reached a historic agreement to significantly increase defense spending from the current 2% of GDP to 5% by 2035.

This increase means that European NATO member countries will add nearly $700 billion in defense spending. Although it will be completed over ten years, it will undoubtedly inject new momentum into the European economy, echoing Germany's previous commitment to increase fiscal stimulus.

Secondly, due to the continued weakness of U.S. macro data, expectations for Federal Reserve rate cuts have continued to rise.

Analysts point out that non-"hard" data is beginning to catch up with the weak performance of "soft" data, with the sharp decline in new home sales being particularly noteworthy. This has intensified market concerns about an economic slowdown, prompting investors to reprice the Federal Reserve's policy path.

Federal Reserve Chairman Jerome Powell did not signal a rate cut during a recent congressional hearing, but weak economic data has convinced the market. Trump expressed dissatisfaction with this, threatening to potentially nominate new candidates for the Federal Reserve chair, all of whom support rate cut policies Kunal Shah, head of commodity and currency research at Nirmal Bang, stated in a media interview that the Federal Reserve will find it difficult to maintain high interest rates due to fiscal pressure and the rapid growth of debt.

Shah predicts that the US dollar index may fall to the 93-94 range in the next three months and points out that the rate cut may reach 50-75 basis points.

Commodities: Gold rises steadily, silver poised for a breakout

The weakness of the dollar directly benefits the precious metals market. Gold prices have continued to rise after rebounding from the support level of $3,300 per ounce.

Analyst Kunal Shah noted that although gold has partially priced in the expectation of a 50 basis point rate cut, the short-term upside may be limited to $3,500 per ounce, but its downside risk is also limited, with a solid support range of $3,100-$3,200 per ounce.

In contrast, silver has performed even more impressively.

Shah pointed out that silver has recorded an approximate 8% supply gap for three consecutive years, and the supply of scrap is also shrinking, with prices expected to rise rapidly from the current $39.5 per ounce to $42.8-$44.7 per ounce.

Non-ferrous metals: Copper prices lead, demand resonates with the dollar

The weakening dollar also provides significant price support for non-ferrous metals. Overnight, prices of non-ferrous metals such as copper, aluminum, zinc, and nickel generally rose.

Goldman Sachs predicts that driven by tariff policies and demand growth, copper prices will average $9,890 per ton in late 2025.

Potential tightening on the supply side also provides further support for prices, especially against the backdrop of geopolitical changes that may affect global supply chains.

LME copper contracts have seen a decrease in premiums, indicating that the market may be loosening, but this change has not yet exerted significant pressure on prices. Other non-ferrous metals such as aluminum, zinc, and nickel have also benefited from the weak dollar and recorded gains