Gold prices declined in European trading on Wednesday, remaining in negative territory for a second consecutive session and moving further away from a three-week high, amid continued correction and profit-taking activity, while coming under pressure from the strong rise in the US dollar in the foreign exchange market.

US inflation came in higher than expected in April, reinforcing expectations that the Federal Reserve could raise interest rates later this year, as investors await more evidence regarding the future path of US monetary policy.

Price Overview

• Gold prices today: Gold prices fell 0.65% to $4,686.12, from the opening level of $4,715.80, while recording a session high at $4,727.10.

• At Tuesday’s settlement, gold prices lost 0.4%, after hitting a three-week high earlier in the session at $4,773.58 per ounce.

• Aside from profit-taking activity, gold prices came under pressure from rising dollar and oil prices in global markets.

US dollar

The dollar index rose 0.7% on Wednesday, extending gains for a third straight session and recording a two-week high, reflecting broad strength in the US currency against a basket of major and minor currencies.

As is well known, a stronger US dollar makes gold bullion priced in dollars less attractive to holders of other currencies.

The rally comes as investors continue favoring the dollar as a safe haven amid escalating tensions between the United States and Iran, while key US inflation data strengthened expectations that the Federal Reserve could raise interest rates this year.

US interest rates

• The US Senate voted successfully on Tuesday to approve Kevin Warsh as Chairman of the Federal Reserve.

• The US Consumer Price Index rose 3.8% in April, up from 3.3% in March and above market expectations of 3.6%.

• Traders have largely ruled out Federal Reserve rate cuts this year, with markets now pricing in a 30% probability of a rate hike by December.

• According to the CME Group FedWatch Tool, markets are currently pricing a 97% probability that the Federal Reserve will leave interest rates unchanged at the June meeting, while pricing a 3% probability of a 25-basis-point rate cut.

• To reassess these expectations, investors are closely monitoring additional US economic data, alongside comments from Federal Reserve officials.

Gold outlook

Kyle Rodda, analyst at Capital.com, said: “US inflation data has weakened hopes — if not completely eliminated them — for Federal Reserve interest rate cuts.”

Rodda added: “Markets now expect the Fed’s next move to potentially be a rate hike by the end of the year, and that is putting downward pressure on gold prices.”

SPDR Fund

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by 2 metric tons on Tuesday, marking a fourth consecutive daily increase and bringing total holdings to 1,038.28 metric tons, the highest level since April 29.

The euro declined at the start of European trading on Wednesday against a basket of global currencies, extending its losses for a third consecutive session against the US dollar, under negative pressure from investor risk aversion and continued demand for the US currency as the preferred safe-haven asset amid stalled peace talks between the United States and Iran.

This week, markets increased pricing for a European interest rate hike in June. Investors are now awaiting additional economic data from the eurozone to reassess those expectations.

Price Overview

• Euro exchange rate today: The euro fell nearly 0.1% against the dollar to $1.1731, from the opening level of $1.1738, while recording a session high at $1.1742.

• The euro ended Tuesday trading down around 0.4% against the dollar, marking its second consecutive daily loss due to fading hopes for peace in the Middle East.

US dollar

The dollar index rose 0.1% on Wednesday, maintaining gains for a third straight session and reflecting continued strength in the US currency against a basket of global currencies.

The advance comes as investors continue focusing on buying the dollar as a safe haven, after key US inflation data strengthened expectations that the Federal Reserve could raise interest rates later this year.

US-Iran talks

Hopes for a peace agreement in the Middle East weakened after Trump said the ceasefire with Iran was “on the verge of collapse” following Tehran’s rejection of a US proposal to end the war and its insistence on a list of key demands.

US President Donald Trump said on Tuesday that the financial difficulties facing Americans would not affect his determination to negotiate an end to the war with Iran, stressing that preventing Tehran from obtaining a nuclear weapon remains his top priority.

Trump also confirmed that he is seriously considering relaunching “Project Freedom,” while announcing plans for an upcoming meeting with a large group of generals and military leaders to discuss available options and strategies regarding the Iranian الملف.

Meanwhile, Iranian Parliament Speaker Mohammad Bagher Ghalibaf said there is no alternative to accepting Iran’s proposal, stressing that Tehran is ready to respond immediately to any military operations.

European interest rates

• With global oil prices rising this week, money markets increased pricing for a 25-basis-point interest rate hike by the European Central Bank in June from 45% to 50%.

• Investors are now awaiting additional eurozone economic data on inflation, unemployment, and wages to further reassess those expectations.

The Japanese yen fell in Asian trading on Wednesday against a basket of major and minor currencies, extending its losses for a third consecutive session against the US dollar, under the close watch of Japanese authorities, which are closely monitoring movements in the local currency within the foreign exchange market.

Following the Bank of Japan’s summary of opinions, and with global oil prices continuing to rise, markets increased pricing for the possibility of a Bank of Japan rate hike at the June meeting. Investors are now awaiting additional data on developments in the world’s fourth-largest economy to reassess those expectations.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.1% to ¥157.78, from the opening level of ¥157.62, while recording a session low at ¥157.54.

• The yen ended Tuesday trading down 0.3% against the dollar, marking its second consecutive daily loss amid escalating tensions between the United States and Iran.

Japanese authorities

Japanese Finance Minister Satsuki Katayama confirmed, following her meeting with US Treasury Secretary Scott Bessent, that both sides are “fully aligned” regarding currency movements.

The US side also reaffirmed that coordination remains ongoing and strong to counter any “excessive and undesirable” volatility in the foreign exchange market, effectively giving Japan an implicit green light to intervene again if needed.

Katayama had previously issued strong warnings against “speculative and excessive” movements in the foreign exchange market, while hinting at “decisive” measures and urging markets to remain on constant alert.

US dollar

The dollar index rose 0.1% on Wednesday, maintaining gains for a third straight session and reflecting continued strength in the US currency against a basket of global currencies.

The advance comes as investors continue favoring the dollar as a safe haven, after key US inflation data reinforced expectations that the Federal Reserve could raise interest rates later this year.

US President Donald Trump said on Tuesday that the financial difficulties facing Americans would not affect his determination to negotiate an end to the war with Iran, stressing that preventing Tehran from obtaining a nuclear weapon remains his top priority.

Hopes for a Middle East peace agreement weakened further after Trump said the ceasefire with Iran was “on the verge of collapse” following Tehran’s rejection of a US proposal to end the war and its insistence on a list of key demands.

Japanese interest rates

• The Bank of Japan’s summary of opinions released Tuesday showed a clear hawkish bias and preparations for an earlier rate hike, driven by rising inflation risks stemming from the Middle East crisis and the Iranian war.

• With oil prices rising, markets increased pricing for a quarter-point interest rate hike by the Bank of Japan at the June meeting from 55% to 60%.

• Investors are now awaiting additional data on inflation, unemployment, and wages in Japan to further reassess those expectations.

Oil prices rose on Tuesday as optimism faded over the possibility of the United States and Iran reaching an agreement to end their confrontation and reopen the Strait of Hormuz.

Brent crude futures for July delivery climbed 3.1% to $107.46 per barrel by 1:50 PM Eastern Time, while US West Texas Intermediate crude futures for June delivery rose 3.7% to $101.65 per barrel.

US President Donald Trump rejected Iran’s counteroffer to the American proposal aimed at ending the conflict, describing it on Monday as “nonsense,” and warning that the ceasefire was now “on life support.”

Amos Hochstein, former energy adviser to former US President Joe Biden, said in an interview with CNBC: “We are in a frozen conflict and a frozen standoff.”

He added: “Right now the strait is closed, so we are facing a situation with no war, no oil, and no shipping lanes.”

Hochstein indicated that a breakthrough this week appears unlikely as Trump heads to China to meet Chinese President Xi Jinping.

He expects oil prices to remain elevated within a range of $90 to $100 per barrel through the end of the year and possibly until 2027, even if the Strait of Hormuz reopens in early June.

He added: “The oil market is heading toward the edge of a cliff if the United States and Iran fail to reach an agreement by June.”

He continued: “When the oil and energy market falls off the cliff, it becomes very difficult to recover quickly. At that point, it is no longer about returning to normal conditions, but rather a process that takes a very long time.”

Meanwhile, Admiral James Stavridis, former Supreme Allied Commander of NATO forces, said Trump is facing three options “and all of them are bad”: either withdraw from the conflict, resume a large-scale bombing campaign, or attempt to reopen the Strait of Hormuz by force.

Stavridis considered reopening the strait by force the most likely option at the moment, but noted that it would require massive naval resources, ground forces, and costs reaching $1 billion per week.

Since the outbreak of the US- and Israeli-led war against Iran on February 28, both WTI and Brent crude prices have risen more than 40%.

Citi said in a note that oil prices “remain volatile and could move higher if US-Iran negotiations remain complicated.”

Henry Wilkinson, chief intelligence officer at geopolitical risk firm Dragonfly, said the possibility of escalation with Iran still remains, adding that Trump may ask Xi Jinping to pressure Tehran into accepting US conditions during the expected Washington-Beijing talks this week.

In the same context, Saudi Aramco CEO Amin Nasser warned on Monday that the oil market may need until 2027 to return to balance if the Strait of Hormuz remains closed beyond mid-June.

Nasser said during the company’s first-quarter earnings conference: “If the Strait of Hormuz reopened today, the market would still need months to regain balance, and if reopening is delayed for additional weeks, stability may not return until 2027.”