US Dollar Decline Impacts Metal Prices Despite Traditional Relationships

How Is the US Dollar Affecting Metal Prices in 2025?

The US dollar index has recorded its sixth consecutive monthly decline, closing at 96.77 after falling 0.5% overnight. This represents a staggering 10.8% decline in the first half of 2025—the worst H1 performance since the 1970s. This prolonged weakness stems from mounting concerns over rising US government deficits and uncertainties surrounding trade agreements with major economies.

The dollar's persistent decline typically creates favorable conditions for commodity prices, as a weaker dollar makes dollar-denominated commodities less expensive for holders of other currencies. However, the metals market has shown an unusual pattern where this traditional inverse relationship hasn't held consistently, indicating other market forces are currently dominant in the US dollar decline and metals market.

Key Factors Behind the Dollar's Decline

• Fiscal concerns: Senate Republicans are pushing to pass comprehensive tax cut legislation despite internal disagreements over the $3.3 trillion debt-increasing proposal
• Trade uncertainties: Ongoing tensions with major trading partners creating market anxiety
• Economic indicators: Markets awaiting critical employment data including Wednesday's ADP report and Thursday's jobless claims figures
• Federal Reserve policy expectations: Shifting sentiment regarding potential interest rate adjustments

Market Insight: "The dollar's sustained decline reflects deeper structural concerns about US fiscal stability that go beyond typical cyclical factors," notes the latest SMM Market Report. "This has created unusual disconnects in traditional currency-commodity relationships."

How Are Base Metals Responding to Dollar Weakness?

Despite the dollar's continued decline—which typically supports commodity prices—most metals showed weakness in recent trading sessions, suggesting other market factors are currently exerting stronger influence. Supply chain concerns, manufacturing slowdowns in key economies, and inventory adjustments appear to be overriding the currency effect.

Domestic Base Metals Performance

The mixed performance across base metals highlights the complex interplay of factors affecting each metal differently. Industrial demand signals, particularly from China's manufacturing sector, appear to be weighing more heavily than currency movements. Recent copper price forecast data suggests potential upside despite current pressure.

LME Base Metals Trends

The London Metal Exchange saw predominantly negative performance across base metals:

• Copper: Remained flat at $9,878/mt
• Aluminum: Minimal increase of 0.1%
• Lead: Slight decline of 0.12%
• Zinc: Largest drop at 1.37%
• Tin: Minimal decrease of 0.04%
• Nickel: Fell by 0.79%

Analysts point to concerns about industrial demand as the primary driver of these declines, with particular attention to slowing construction activity in key markets and shifting EV production forecasts affecting nickel demand.

What's Happening in the Ferrous Metals Market?

The ferrous metals sector experienced universal declines overnight, with stainless steel leading the downturn. This sector-wide weakness suggests broader industrial concerns rather than metal-specific factors.

Ferrous Metals Decline

• Iron ore: Decreased by 0.63%
• Stainless steel: Largest decline at 1.26%
• Rebar: Fell by 0.73%
• Hot-rolled coil (HRC): Decreased by 0.61%

These declines come despite traditionally supportive currency conditions, indicating that demand concerns are outweighing dollar weakness. Construction slowdowns and policy shifts in China's property sector continue to impact steel-related materials. The ongoing iron ore price decline has been particularly notable in this context.

Coking Coal and Coke Performance

• Coking coal: Significant drop of 1.84%
• Coke: Declined by 0.88%

The steeper decline in coking coal relative to finished steel products suggests upstream pressure that could eventually impact steel production economics. This input cost dynamic bears watching as it could predict future steel pricing movements.

Are Precious Metals Providing Safe Haven in Dollar Weakness?

Precious metals showed mixed performance, with gold generally strengthening while silver results varied by market. Gold's positive performance aligns with its traditional role as a hedge against currency weakness and inflation concerns.

Precious Metals Performance

• COMEX gold: Rose by 0.83%
• SHFE gold: Increased by 0.54%
• COMEX silver: Slight decline of 0.11%
• SHFE silver: Modest gain of 0.1%

Gold's resilience amid broader commodity weakness highlights its distinctive role as both a commodity and monetary asset. The divergence between gold and silver performance indicates industrial demand concerns may be tempering silver's monetary aspects. For deeper insights, the recent gold/silver ratio analysis provides valuable context for investors.

Gold Price Outlook

According to Citi analysts, gold prices are expected to consolidate between $3,100-3,500/mt in Q3 2025. They noted that the $4,500/mt peak observed in late April may represent the upper bound as market shortages approach their apex.

"The gold market is likely nearing its supply-demand imbalance peak, which should contain prices despite ongoing currency pressures," Citi analysts explained in their latest precious metals outlook.

This price range prediction suggests a potential cooling of the gold rally that has been fueled by geopolitical tensions and dollar weakness, though prices remain historically elevated. Recent gold prices analysis indicates the complex factors driving the precious metals sector.

What's Happening in China's Non-Ferrous Metals Sector?

China's first "High-end Non-ferrous Metals Materials Innovation Consortium" has reported significant technological breakthroughs in key areas. These advances could reshape supply dynamics for specialized metals and alloys critical to aerospace and high-tech manufacturing.

Major Technological Advancements

• Establishment of 26 specialized research teams
• Breakthroughs in eight common key technologies, including C919 aircraft aluminum alloy residual stress control
• Resolution of 18 "bottleneck" technologies
• Recognition through prestigious awards:
  • One Second Prize of the National Science and Technology Progress Award
  • One First Prize for Defense Science and Technology in the non-ferrous metals field

These technological breakthroughs could potentially reduce China's dependence on imported high-grade metals and specialty alloys, particularly those used in aerospace and defense applications. The focus on aluminum alloy stress control for the C919 aircraft highlights the strategic importance of these developments for China's commercial aviation ambitions.

How Are Trade Policies Affecting the Stainless Steel Market?

China's Ministry of Commerce has extended anti-dumping measures on certain stainless steel products for an additional five years. This policy extension signals continued protection for domestic producers against international competition.

Extended Anti-Dumping Duties

• Products affected: Stainless steel billets and hot-rolled stainless steel plates/coils
• Countries targeted: European Union, United Kingdom, South Korea, and Indonesia
• Duration: Five-year extension beginning July 1, 2025
• Implementation: Decision made by the State Council Tariff Commission based on Ministry of Commerce recommendations

This trade policy extension could significantly impact global stainless steel trade flows, potentially redirecting exports from targeted countries to alternative markets while supporting domestic Chinese producers. The five-year timeframe provides predictability for market participants but may contribute to regional price disparities.

What's the Outlook for China's Economy in Q3 2025?

The China Securities Industry Association recently held its Q2 chief economist meeting, providing insights into economic expectations for the coming quarter. The consensus points to modest expansion across key metrics.

Economic Forecast Highlights

• Over 70% of chief economists anticipate year-over-year growth rate increases for:
  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Fixed-asset investment

This broad consensus suggests growing confidence in China's economic trajectory, with inflation metrics expected to rise from recent subdued levels. The anticipated increase in fixed-asset investment is particularly relevant for industrial metals demand.

Policy Recommendations

Economic experts suggested several measures to strengthen China's economic position:

• Enhancing national subsidy policies
• Activating consumption scenarios
• Driving down real interest rates
• Improving policy coordination to direct medium and long-term funds into supply chain-related sectors
• Stabilizing market expectations and bolstering confidence

These policy recommendations focus on stimulating domestic demand while ensuring capital flows toward productive industrial capacity. The emphasis on supply chain investment could provide targeted support for metals used in manufacturing and infrastructure.

What's Happening in the Global Oil Market?

Crude oil futures declined overnight as the market weighs easing Middle Eastern tensions against potential OPEC production increases. Energy costs remain a critical input factor for metals production, making oil price movements relevant for overall metals industry economics.

Oil Market Performance

• WTI crude: Fell 0.84%
• Brent crude: Decreased 0.25%

The steeper decline in WTI compared to Brent indicates localized supply factors in North America exerting greater downward pressure on the US benchmark.

OPEC Production Plans

• Expected production increase of 411,000 barrels per day in August
• Following increases in May, June, and July
• If approved at the July 6 meeting, OPEC's total production increase for 2025 would reach 1.78 million barrels per day
• This represents more than 1.5% of global total demand

"Despite the planned production increases, underlying market tightness persists," notes Giovanni Staunovo of UBS. In contrast, Ole Hansen from Saxo Bank cautions that "supply pressure is being underestimated, leaving prices vulnerable to further weakness."

These contrasting expert views highlight the uncertainty surrounding oil market dynamics, with implications for energy-intensive metals production costs.

US Production Impact

• US crude oil production reached a record high of 13.47 million barrels per day in April
• Up from 13.45 million barrels per day in March
• Record-high US production has intensified bearish market sentiment

The continued expansion of US production represents a structural shift in global oil markets that could help moderate energy costs for metals producers over the medium term, particularly in North America.

What Key Economic Data Should Investors Watch?

Several important economic indicators are scheduled for release, potentially influencing market direction. These data points will provide crucial insights into manufacturing activity, inflation trends, and labor market conditions.

Critical Data Releases

• China's June Caixin Manufacturing PMI
• European manufacturing PMI data (France, Germany, Eurozone, UK)
• Eurozone inflation figures
• US manufacturing data and job openings
• Mexico's June SPGI Manufacturing PMI

Manufacturing PMI data will be particularly relevant for industrial metals demand forecasting, as these indices provide forward-looking indicators of factory activity and materials consumption.

Notable Events

• Hong Kong Stock Exchange closed for Hong Kong Special Administrative Region Establishment Day
• Speeches by key central bank officials including Fed's Goolsbee and ECB's Lagarde
• Panel discussion among major global central bank governors
• European Central Bank's Central Banking Forum in Sintra

The central banker panel featuring Powell (Fed), Lagarde (ECB), Bailey (BoE), Ueda Kazuo (BoJ), and Lee Chang-yong (BoK) could provide important signals about coordinated monetary policy approaches that might impact currency values and, by extension, dollar-denominated commodity prices. As noted in a recent analysis by Schroders, "The dollar's decline has significant implications for gold and other monetary metals."

FAQ: US Dollar Decline and Metals Markets

Why is the US dollar experiencing such a prolonged decline?

The US dollar's sixth consecutive monthly decline stems from multiple factors including concerns over rising US government deficits, uncertainties surrounding trade agreements with major economies, and shifting expectations regarding Federal Reserve monetary policy. The 10.8% decline in H1 2025 represents the worst first-half performance since the 1970s.

Why aren't metal prices rising more significantly despite dollar weakness?

While a weaker dollar typically supports commodity prices by making them cheaper for non-dollar holders, other market factors are currently exerting stronger downward pressure. These include concerns about global economic growth, specific supply-demand dynamics within individual metal markets, and geopolitical uncertainties affecting industrial demand.

What metals are showing the most resilience in the current market?

Among base metals, aluminum on both SHFE and LME showed modest gains, while lead on SHFE also posted a slight increase. In precious metals, gold demonstrated strength with COMEX gold rising 0.83% and SHFE gold increasing by 0.54%, reflecting its traditional role as a safe-haven asset during periods of currency weakness.

How might China's technological advancements in non-ferrous metals affect global markets?

China's breakthroughs in high-end non-ferrous metals technologies could potentially reduce its dependence on imports for specialized materials, alter global supply chains, and increase competition in high-value metal products. The resolution of 18 "bottleneck" technologies suggests China is making progress in addressing critical materials challenges in strategic sectors like aerospace and electronics.

What potential impact could OPEC's production increases have on industrial metals?

If OPEC proceeds with its planned production increase of 411,000 barrels per day in August, bringing total 2025 increases to 1.78 million barrels per day, energy costs for metal production could potentially decrease. Lower energy costs typically benefit metal producers by reducing operational expenses, potentially supporting production increases and moderating price pressures. According to market research from Forex.com, "Energy costs remain a critical factor in metals production economics."

Disclaimer: The information provided in this article is based on market data as of July 1, 2025, and represents the current analysis of market conditions. Future developments may significantly alter the outlook for both currency and metals markets. Investors should conduct their own research and consider consulting with financial advisors before making investment decisions.

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