The dollar traded near a one-week high on Wednesday as renewed uncertainty in the Middle East and stronger-than-expected US inflation data continued to support demand for the safe-haven currency, while investors closely monitored movements in the Japanese yen.

The euro fell 0.26% to $1.17095, while the British pound slipped 0.1% to $1.3524.

Meanwhile, the risk-sensitive Australian dollar held steady at $0.72410, while the New Zealand dollar declined 0.3% to $0.59345.

The US Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.2% to 98.501 points, its highest level since May 5.

In energy markets, oil prices fell 1% but remained above the $100-per-barrel mark, with Brent crude trading near $106.6 per barrel.

Hopes for a Middle East peace agreement faded after US President Donald Trump said the ceasefire with Iran was “on life support” following Tehran’s rejection of a US proposal aimed at ending the war.

Trump also said on Tuesday that he does not believe he needs Beijing’s help to end the war with Iran, ahead of his expected meeting with Chinese President Xi Jinping later this week.

“What’s happening in the Strait of Hormuz is the key driver in the background,” said Tommy von Brömsen, FX strategist at Handelsbanken in Stockholm, adding that a prolonged crisis would place central banks in a more difficult position.

US inflation continues to rise

Data showed that the US Consumer Price Index rose 3.8% in the 12 months through April, marking the largest annual increase since May 2023, as the oil price shock caused by the war continued to push prices higher.

US two-year Treasury yields, which typically track interest rate expectations, remained near seven-week highs at 3.9812%, while benchmark 10-year yields held around 4.461%.

Markets have now largely ruled out the possibility of Federal Reserve rate cuts this year, while expectations for at least a 25-basis-point hike in December climbed to 35%, according to CME Group’s FedWatch Tool.

Currency analysts at Commerzbank said the magnitude of the inflation increase was both surprising and significant, especially with Federal Reserve Chair Jerome Powell’s term set to expire on Friday.

The US Senate on Tuesday confirmed Kevin Warsh as a member of the Federal Reserve Board for a 14-year term, in a move widely seen as an important step toward potentially succeeding Powell.

Commerzbank analysts added: “The key question over the coming months will be whether Warsh can gather enough support within the Federal Open Market Committee to push through an early rate cut.”

Japanese yen under scrutiny

The Japanese yen weakened 0.1% to 157.77 per dollar after a sudden rally in the currency on Tuesday sparked speculation that Japanese authorities may have conducted a so-called “rate check,” a move that often precedes direct intervention in currency markets.

US Treasury Secretary Scott Bessent said on Tuesday that both the United States and Japan view excessive currency volatility as undesirable, comments investors interpreted as implicit support for Tokyo’s recent efforts to support the yen.

However, Edana Abio, portfolio manager at First Eagle Investments, said: “My concern is that intervention alone will not be enough to strengthen the yen at this stage.”

Separately, the Bank of Japan said Wednesday that Bessent did not meet BOJ Governor Kazuo Ueda during his visit to Tokyo.

Meanwhile, the Chinese yuan traded near 6.79 per dollar, its strongest level since February 2023, ahead of Trump’s visit to Beijing.

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.