The US dollar edged lower on Thursday as fresh US strikes in the Middle East continued to weigh on investor sentiment, while a jump in US inflation to its highest level in three years in May kept markets focused on the future path of Federal Reserve monetary policy.

Currency markets remained relatively subdued this week as investors balanced the fragility of the Middle East ceasefire against renewed exchanges of strikes between the United States and Iran, reducing hopes for a near-term peace agreement.

The euro rose to $1.1553, moving away from the 10-week low it touched last week, although it has surrendered most of the gains made following the ceasefire announcement in early April. Attention is now turning to the European Central Bank meeting later today, where policymakers are widely expected to raise interest rates to combat inflation.

Sterling was little changed at $1.33905, while the US Dollar Index, which tracks the greenback against a basket of six major currencies, slipped to 99.903 after the US military announced the completion of strikes against several targets inside Iran.

The US military said it carried out a new round of overnight strikes in Iran, while President Donald Trump pledged additional attacks if a peace agreement is not reached.

The renewed escalation unsettled markets and pushed oil prices higher, with Brent crude rising more than 2% to $95.40 per barrel.

Even so, market reactions were more restrained than in previous episodes, with the dollar showing only limited movement during early Asian trading.

"We are still seeing signs of news fatigue in the markets," said Nick Twidale, chief market analyst at ATFX Global. "A few weeks ago, this type of escalation would have sent Brent crude above $100 a barrel and triggered a much stronger rally in the US dollar."

He added: "The issue is that markets need greater certainty. Will this conflict and the closure of the Strait of Hormuz become the new normal, or is it merely a negotiating tactic that could revive hopes for peace?"

Rate hike concerns

Although the US Consumer Price Index rose 4.2% in the 12 months through May, marking the highest annual inflation rate since April 2023, economists still see limited prospects for further monetary tightening.

Core inflation, which excludes food and energy prices, increased 0.2% during the month after rising 0.4% in April, boosting hopes that inflationary pressures stemming from the energy price shock can be contained.

James Knightley, chief international economist at ING, said labor costs remain the biggest burden on US businesses, and with wage growth continuing to slow, this could help ease pressure on core inflation.

"All of this should help keep inflation expectations under control. Therefore, while we no longer expect the Fed to cut interest rates this year due to stronger economic momentum, we also do not expect a rate hike," he said.

Markets are currently pricing in a full 25-basis-point rate increase in December, a significant shift from earlier expectations that had pointed to two rate cuts this year before the outbreak of the Iran conflict at the end of February.

Japanese yen under pressure

The Japanese yen traded at ¥160.52 per dollar, keeping traders alert for the possibility of intervention by Japanese authorities to support the currency.

Meanwhile, Bank of Japan Governor Kazuo Ueda was hospitalized for medical treatment and will miss the central bank's June 15-16 policy meeting, where markets widely expect a rate hike.

"We do not expect Ueda's absence to affect the Bank of Japan's decision," said Carol Kong, currency strategist at Commonwealth Bank of Australia. "Both we and the markets continue to expect a 25-basis-point rate increase next week."

In other currency markets, the Australian dollar was little changed at $0.7006 after touching a nine-week low earlier in the session, while the New Zealand dollar held steady at $0.5797.

Gold prices rose more than 1% in European trading on Thursday, beginning a recovery from their lowest level of 2026 recorded earlier in Asian trading. Buying interest emerged at lower levels near the key $4,000-per-ounce mark, supported by a weaker US dollar and lower oil prices following a halt in military escalations between the United States and Iran, as hopes for a peace agreement to end the conflict in the Middle East resurfaced.

With markets continuing to price in elevated odds of a Federal Reserve interest rate hike in December, investors are awaiting additional key US economic data, particularly producer price figures due later today.

The Price

• Gold prices today: Gold gained 1.1% to $4,118.23 per ounce, up from an opening level of $4,072.07, after touching an intraday low of $4,023.86, its lowest level since November 2025.

• At Wednesday’s settlement, gold prices fell 4.5%, marking a fourth consecutive daily loss and the largest one-day decline since February 2, amid continued heavy selling across precious metals markets.

US dollar

The US Dollar Index fell 0.2% on Thursday, resuming losses that were temporarily paused on Wednesday and moving further away from two-month highs, reflecting weakness in the US currency against a basket of global peers.

The decline followed the conclusion of a new round of US strikes on Iran, which are being viewed as part of a pressure strategy aimed at encouraging Iranian authorities to make greater progress in ongoing peace negotiations, potentially paving the way for a final agreement that could reduce tensions and enhance stability across the Middle East.

Global oil prices

Global oil prices fell around 3%, heading toward fresh multi-week lows after the United States denied reports that the Strait of Hormuz had been closed to maritime traffic, easing concerns about disruptions to global energy supplies.

Developments in the Iran conflict

• The United States launched new airstrikes on Iran for a second consecutive day.

• Prior to the attacks, President Donald Trump said the United States would carry out a "very strong" strike against Iran.

• US Defense Secretary Pete Hegseth said Washington would target "vital facilities."

• The attacks represent one of the most serious escalations since the April ceasefire.

• Iran’s Revolutionary Guard said US military bases in Kuwait and Bahrain were targeted with drones and missiles.

• Tehran announced the complete closure of the Strait of Hormuz due to security concerns, while Washington denied that the strait had been closed.

• Diplomatic sources said US-Iran talks remain on track.

US interest rates

• Goldman Sachs expects the Federal Reserve to leave interest rates unchanged throughout 2026 and delay any rate cuts until 2027, citing stronger economic activity and job growth.

• Data released on Wednesday showed US consumer inflation rising at its fastest pace in three years during May, driven by higher energy prices amid the Middle East conflict.

• According to CME Group's FedWatch Tool, markets are currently pricing a 67% probability of a Federal Reserve rate hike at the December meeting.

• Markets also continue to price a 98% probability that rates will remain unchanged at the June meeting, while the odds of a 25-basis-point rate cut stand at 2%.

• Investors are now awaiting US producer price data for May later today, which could reshape interest rate expectations.

Gold outlook

Matt Simpson, senior analyst at StoneX, said that as prices approach the $4,000 level, it represents a clear support zone that could encourage sellers to take profits quickly or convince sidelined buyers to remain patient.

Simpson added that the US Dollar Index failed to post meaningful gains following Wednesday’s Consumer Price Index report. Therefore, unless producer price data delivers an unpleasant surprise, gold could experience a technical rebound in the near term.

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, declined by 2.86 metric tons on Wednesday, marking a second consecutive daily decrease. Total holdings fell to 1,013.64 metric tons, the lowest level since October 9, 2025.

The euro rose in European trading on Thursday against a basket of global currencies, moving into positive territory against the US dollar and heading toward its third gain in the last four sessions, ahead of the European Central Bank's policy decisions later today. The ECB is widely expected to announce its first interest rate increase since July 2023.

The US dollar weakened, while oil prices erased their gains after a new round of US strikes on Iran concluded and tensions in the Strait of Hormuz eased. Markets are now watching for any fresh developments in the ongoing peace negotiations between Washington and Tehran.

The Price

• Euro exchange rate today: The euro rose about 0.2% against the dollar to $1.1556, up from an opening level of $1.1535, after touching an intraday low of $1.1526.

• The euro ended Wednesday down 0.1% against the dollar, marking its first loss in the past three sessions after Donald Trump warned of potential new strikes against Iran.

US dollar

The US Dollar Index fell 0.2% on Thursday, resuming losses that were temporarily paused on Wednesday and moving further away from two-month highs, reflecting weakness in the US currency against a basket of major and minor peers.

The decline followed the conclusion of a new round of US strikes on Iran, which are being viewed as part of a pressure strategy aimed at encouraging Iranian authorities to make greater progress in ongoing peace negotiations, potentially paving the way for a final agreement that could reduce tensions and enhance stability across the Middle East.

Global oil prices

Global oil prices surrendered most of their early gains on Thursday after the United States denied reports that the Strait of Hormuz had been closed to shipping traffic, helping to ease concerns about disruptions to global energy supplies.

Developments in the Iran conflict

• The United States launched new airstrikes on Iran for a second consecutive day.

• Prior to the attack, President Donald Trump said the United States would carry out a "very strong" strike against Iran.

• US Defense Secretary Pete Hegseth said Washington would target "vital facilities."

• The attacks represent one of the most serious escalations since the April ceasefire.

• Iran’s Revolutionary Guard said US military bases in Kuwait and Bahrain were targeted with drones and missiles.

• Tehran announced the complete closure of the Strait of Hormuz due to security concerns, while Washington denied that the strait had been closed.

European Central Bank

Later today, the European Central Bank will conclude its fourth monetary policy meeting of 2026. Markets fully expect an interest rate increase, while the accompanying statement is expected to provide further guidance and clarification on the future path of rates throughout the year.

Current expectations point to a 25-basis-point rate hike, raising the ECB's key rate from 2.15% to 2.40%. It would mark the first interest rate increase in the eurozone since July 2023, following seven consecutive meetings in which rates were left unchanged.

The ECB's rate decision and monetary policy statement are due at 12:15 GMT, while ECB President Christine Lagarde is scheduled to hold a press conference at 12:45 GMT.

Outlook for the euro

At Economies.com, we expect that if the European Central Bank delivers more hawkish comments than markets currently anticipate, expectations for an additional rate increase later this year will rise, helping to extend the euro’s gains against a basket of global currencies.

The Japanese yen rose in Asian trading on Thursday against a basket of currencies, attempting to recover from a six-week low against the US dollar and heading toward its first gain in three days, supported by buying activity at lower levels.

The move comes amid growing expectations that the Bank of Japan could take steps to support the local currency, particularly as the yen continues to trade within the intervention zone closely monitored by Japanese monetary authorities.

The US dollar weakened, while oil prices surrendered their gains after a new round of US strikes on Iran concluded and tensions in the Strait of Hormuz eased. Markets are now watching for further developments in the ongoing peace negotiations between Washington and Tehran.

The Price

• Japanese yen exchange rate today: The dollar fell about 0.1% against the yen to ¥160.42, from an opening level of ¥160.54, after touching an intraday high of ¥160.56.

• The yen ended Wednesday down more than 0.1% against the dollar, marking its second consecutive daily loss and hitting a six-week low of ¥160.57.

The 160-yen threshold

Japanese authorities are closely monitoring movements in the currency market, particularly after the yen weakened beyond the key ¥160-per-dollar threshold, a level widely viewed as one that could trigger renewed intervention.

Sources told Reuters that Tokyo intervened several times in late April and early May to halt the yen’s decline. At that time, the currency had fallen to ¥160.72 per dollar, its weakest level since July 2024.

Japanese officials have warned against excessive currency volatility and indicated that authorities could take decisive action against disorderly movements in the foreign exchange market.

Finance Minister Satsuki Katayama said the government is "prepared to take appropriate action" if currency markets experience excessive or speculative moves.

Japanese interest rates

• Data released on Wednesday showed Japan’s producer prices accelerating to their highest level in three years as energy costs surged due to the Iran conflict.

• Following the data, market pricing for a quarter-point interest rate hike by the Bank of Japan at its June meeting increased from 75% to 95%.

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

• The Bank of Japan will meet on June 15-16 to evaluate the appropriate monetary policy tools for the world’s fourth-largest economy.

US dollar

The US Dollar Index fell more than 0.1% on Thursday, resuming losses that were temporarily paused on Wednesday and moving further away from two-month highs, reflecting weakness in the US currency against a basket of major and minor peers.

The decline followed the conclusion of a new round of US strikes on Iran, which are being viewed as part of a pressure strategy aimed at encouraging Iranian authorities to make greater progress in ongoing peace negotiations, potentially paving the way for a final agreement that could reduce tensions and improve stability across the Middle East.

Global oil prices

Global oil prices gave up most of their early gains on Thursday after the United States denied reports that the Strait of Hormuz had been closed to shipping traffic, helping to ease concerns about disruptions to global energy supplies.

Developments in the Iran conflict

• The United States launched new airstrikes on Iran for a second consecutive day.

• Prior to the attack, President Donald Trump said the United States would carry out a "very strong" strike against Iran.

• US Defense Secretary Pete Hegseth said Washington would target "vital facilities."

• The attacks represent one of the most serious escalations since the April ceasefire.

• Iran’s Revolutionary Guard said US military bases in Kuwait and Bahrain were targeted with drones and missiles.

• Tehran announced the complete closure of the Strait of Hormuz due to security concerns, while Washington denied that the strait had been closed.