DXY: Maintains stability while metals diverge – BNY

Shifting Dynamics Between the U.S. Dollar and LME Metals

According to Bob Savage, Head of Markets Macro Strategy at BNY, the U.S. Dollar has maintained a steady range between 95 and 99, even as the LME Metals Index has experienced a notable rally. This marks a departure from the typical inverse relationship between the two, as the longstanding negative correlation has recently broken down.

Unusual Divergence in Market Trends

Historically, the U.S. Dollar and the LME Metals Index have moved in opposite directions. However, 2026 has seen this pattern disrupted, with the dollar remaining stable while metals prices climb—a scenario not observed since the onset of the COVID-19 pandemic.

This shift appears to be driven more by factors such as resource scarcity and increased stockpiling, rather than changes in real-rate valuations.

Changing Influence of Fed Policy

The connection between the USD index and Federal Reserve policy has also evolved in this cycle. Investors are now anticipating fewer interest rate reductions in 2026 compared to previous cycles.

Despite these changes, the dollar has not experienced a significant rally. This suggests that persistent demand for FX hedging and efforts to reduce currency risk continue to influence the market. Additionally, concerns over supply chains and broader financial stability appear to outweigh fears of a sharp decline in the dollar.

(This report was produced with assistance from artificial intelligence and reviewed by an editor.)