The US dollar declined on Friday on track for the fifth monthly drop in a row amid persistent uncertainty on US fiscal and trade policies.

The dollar had a turbulent week after the US appeals court reinstated Trump’s tariffs after a single day of a trade court’s order to suspend them.

Trump said he hopes the Supreme Court will outright revoke the trade court’s decision, with officials indicating they’ll use other presidential powers to ensure the implementation of tariff policies.

Investors Flee US Assets

Extreme uncertainty about US tariffs pressured the markets heavily in recent weeks with investors fleeing US assets in search for calmer and safer alternatives. 

Analysts believe the US is starting to lose its “exceptionalism” status among investors worldwide, leading to an exodus of cash.

Euro and Franc Snag Gains

The euro fell 0.4% today to $1.1325, after mixed inflation data from German states.

However, the dollar is still heading for a monthly decline against the euro, the pound, and the franc.

Recent US unemployment claims and growth data failed to calm concerns about a potential US recession, with investors awaiting the Fed’s favorite Personal Consumption Expenditures report to gather more clues.

Persistent concerns about debt in advanced economies hurt demand on long-term government bonds in both the US and Japan in particular. 

Dollar Marks Longest Losing Streak Since 2017

The dollar index rose 0.3% against a basket of major rivals to 99.58, but is still down 0.10% in May, on track for the fifth monthly decline in a row.

Emerging currencies on the other hand are surging by an average of 2% according to the emerging currencies index, the best such performance since November 2023.

The yen settled at 143.93 against the dollar after data showed main Tokyo inflation hit a two-year peak in May, boosting the odds of a Bank of Japan rate hike soon.

US Inflation Outlook

The PCE index is expected to show a 2.2% increase last month, down slightly from 2.3% in March.

The index is crucial in determining the Federal Reserve’s policy decisions this year as officials assess the impact of tariffs.

Gold prices fell in European trade on Friday, resuming losses and trading once more above $3300 under pressure from the stronger dollar against a basket of major rivals.

Now investors await the US consumer consumption expenditure report later today, expected to provide important clues on the future path of Fed rate cuts.

Prices

Gold prices fell 0.9% today to $3287 an ounce, with a session-high at $3322.

On Thursday, gold rose 0.9%, the first profit in four days as the US appeals court stayed Trump’s reciprocal tariffs.

US Dollar

The dollar index rose 0.4% on Friday, resuming gains against a basket of major rivals.

A stronger dollar makes the greenback-denominated gold futures costlier to holders of other currencies.

It comes after a week of strong US data, which reduced concerns about a US recession this year.

US Rates

San Francisco Fed President Mary Dale said on Thursday that policymakers are still capable of delivering two rate cuts this year, but inflation must remain stable near the 2% target.

According to the Fedwatch tool, the odds of a 0.25% June interest rate cut stood at 2%, while the odds of a July rate cut stood at 25%.

Markets now expect 50 basis points of total rate cuts by the end of the year, starting October.

 SPDR

Gold holdings at the SPDR Gold Trust rose 4.59 tons yesterday to a total of 930.20 tons, the highest since May 13.

The euro fell in European trade on Friday against a basket of major rivals, resuming losses against the dollar after a short hiatus yesterday, as investors shun big positions before German and Spanish inflation data for May.

Hot inflation data and bullish remarks from ECB officials led to divisions among policymakers on the rate decision in June, with investors awaiting German and Spanish inflation data this week to gather more clues. 

The Price

The EUR/USD price fell 0.2% today to $1.1346, with a session-high at $1.1390.

The pair rose 0.65% on Thursday, the first loss in three days as an appeal court stayed Trump’s tariffs following a suspension by a federal court.

European Rates

Recent eurozone data showed inflation rose past estimates in April, renewing pressures on ECB policymakers. 

ECB President Christine Lagarde said the euro could be a practical alternative to the dollar if governments managed to bolster the financial and security structures in the EU.

Now markets estimate a less than 50% likelihood for a 0.25% ECB rate cut in June.

Inflation Data

Investors await important inflation data from Germany and Spain later today, followed by data for the whole eurozone next week, crucial for gauging the future path of the ECB interest rate cuts.

The Japanese yen rose in Asian trade on Friday against a basket of major rivals, extending gains for the second straight session against the US dollar and moving away from a two-week trough on short-covering.

The gains are also underpinned by hot Tokyo inflation data, which showed increasing inflationary pressures on the Bank of Japan’s policymakers, boosting the odds of a rate hike in June.

The Price

The USD/JPY price rose 0.5% today to 143.43 yen per dollar, with a session-high at 144.18.

The yen rose 0.45% on Thursday against the dollar, the first profit in four sessions away from a two-week trough at 146.29.

Tokyo Inflation

Earlier data showed consumer prices in Tokyo rose 3.6% y/y in May, the fastest pace since January 2023, and up from 3.4% in April.

Following the data, the odds of a BOJ 0.25% interest rate hike in June rose from 35% to 45%.

Bank of Japan Deputy Governor Shinichi Uchida said the bank will continue to raise interest rates if the economy recovers from the negative impact of US tariffs, however he still cautioned that the economic outlook remains highly uncertain.

Now traders await important Japanese data on inflation, unemployment, and wages to gather more clues.