The Japanese yen weakened to its lowest level against the US dollar since late April during Wednesday’s trading, approaching levels that previously prompted Japanese authorities to intervene in the currency market last month, as traders cautiously assessed the risk of renewed escalation in the war with Iran.

Meanwhile, the New Zealand dollar was among the day’s strongest-performing currencies after surging when the Reserve Bank of New Zealand unexpectedly moved closer to raising interest rates and signaled that tightening could come sooner and at a faster pace than previously expected.

The US dollar, viewed as a safe-haven currency, stabilized after posting modest gains against major currencies in the previous session, as US strikes on Iran reduced optimism over a near-term end to hostilities and the reopening of the vital shipping route through the Strait of Hormuz.

US Secretary of State Marco Rubio said negotiations on an agreement to end the conflict could “take a few days.”

The yen traded at ¥159.45 per dollar, its weakest level since April 30, when Japanese authorities intervened in the market to buy the currency. Many traders consider the ¥160 per dollar level a threshold that could trigger renewed intervention by Japanese authorities, as happened last month when the yen moved beyond that level.

Lee Hardman, currency strategist at MUFG Bank, said: “Markets are clearly leaning toward optimism about the possibility of an agreement regarding Iran, and that has contributed this week to weakening the dollar and lowering bond yields.”

He added: “The surprise is that the yen remains weak. Falling energy prices and lower US Treasury yields would normally reduce the dollar’s gains against the yen, but that has not happened so far.”

Bank of Japan Governor Kazuo Ueda adopted a more hawkish tone, warning that the oil price shock resulting from the war could become persistent amid rising inflation expectations and stronger wage growth.

Data from LSEG showed that markets are currently pricing in a 70% probability that the Bank of Japan will raise interest rates by a quarter percentage point at its next meeting on June 15-16.

The dollar index, which measures the US currency against the yen and five other major currencies, was steady at 99.08 points after rising 0.15% in the previous session.

The euro edged slightly higher to $1.1644, while the British pound remained stable at $1.3446.

The New Zealand dollar jumped 0.6% to $0.587, recovering losses from Tuesday when it had fallen by the same percentage.

The Reserve Bank of New Zealand left its official cash rate unchanged in a split decision, with three members voting for a quarter-point rate hike while three others favored keeping rates steady. Governor Anna Breman cast the deciding vote.

The bank said in its statement: “Overall, the official cash rate is likely to need to rise sooner and by more than indicated in the February monetary policy statement.”

Kelly Eckhold, chief economist at Westpac New Zealand, said: “The governor appears to prefer waiting until there is clearer evidence of rising underlying inflation before taking action.”

He added: “The debate is still ongoing over whether the first rate hike will come in July or September.”

In Australia, the Australian dollar fell 0.4% to $0.714, surrendering earlier gains after data showed annual inflation slowed to 4.2% in April from 4.6% in March, below analysts’ expectations of 4.4%.

That followed weak labor market data last week, prompting traders to price in limited interest rate increases for the remainder of the year, totaling no more than 20 basis points.

Gold prices rose in European trading on Wednesday, moving back into positive territory, supported by a weaker US dollar and declining oil prices, as investors monitored signs of progress in peace negotiations between the United States and Iran.

Lower oil prices are easing inflation concerns in the United States, reducing pressure on Federal Reserve policymakers and lowering the probability of additional US interest rate hikes before the end of this year.

Price Overview

• Gold prices today: Gold prices rose 0.45% to $4,527.97, from the opening level at $4,507.98, and recorded a low of $4,485.94.

• At Tuesday’s settlement, gold prices lost 1.4%, marking the third loss in the past four sessions, following US strikes on Iran.

US dollar

The dollar index fell 0.1% on Wednesday, heading toward its second loss in the past three sessions, reflecting weaker performance of the US currency against a basket of global currencies.

The decline comes as investors maintain optimism over continued progress in peace talks between the United States and Iran amid intensive diplomatic efforts to resolve the remaining points of disagreement between the two sides.

Global oil prices

Global oil prices fell by more than 2% on Wednesday, resuming losses that had temporarily paused yesterday and moving back near five-week lows amid hopes that the Strait of Hormuz could reopen to oil tankers.

Latest developments in the Iranian war

• Iran said the latest US strikes violate the ceasefire agreement.

• A possible preliminary agreement to permanently end the war could pave the way for further negotiations.

• US Secretary of State Marco Rubio said an agreement with Iran could take a few days.

• Both sides had previously indicated progress toward a preliminary agreement to end hostilities and resume shipping through the strait.

US interest rates

• According to the CME Group’s FedWatch tool, markets are currently pricing in a 56% probability that the Federal Reserve will raise interest rates in December, compared to just over 16% at the beginning of May.

• Markets are currently pricing a 99% probability that US interest rates will remain unchanged at the June meeting, while the probability of a 25 basis point rate hike stands at 1%.

• Investors are closely monitoring additional US economic data, along with comments from Federal Reserve officials, in order to reassess those expectations.

Gold outlook

Market strategist Ilya Spivak said: “The broader trend appears bearish, but we are seeing extended periods of consolidation, and I believe that is what we are witnessing today.”

Spivak added that inflation risks and bond market volatility have become so significant that they have shifted attention away from gold’s yield dynamics, meaning gold prices could fall to between $3,700 and $3,800 by the end of the year if the current trend continues.

SPDR Fund

Gold holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained virtually unchanged on Tuesday for the second consecutive session, keeping total holdings at 1,034.85 metric tons, the lowest level since May 8.

The New Zealand dollar rose broadly on Wednesday against a basket of global currencies, moving toward its highest level in at least two weeks against its US counterpart, after hawkish signals from the Reserve Bank of New Zealand following its decision to leave interest rates unchanged.

The decision came amid a sharp division and a historic vote split within the Reserve Bank of New Zealand’s Monetary Policy Committee, which indicated that interest rates may need to rise in the coming months to counter accelerating inflation in the country, lifting expectations for a New Zealand rate hike in July.

Price Overview

• New Zealand dollar exchange rate today: The New Zealand dollar rose 0.7% against the US dollar to 0.5878, from today’s opening level at 0.5837, and recorded a low of 0.5836.

• The New Zealand dollar ended Tuesday’s trading down 0.6% against the US dollar due to risk aversion after the United States carried out strikes on Iranian boats and missile sites.

Reserve Bank of New Zealand

The Reserve Bank of New Zealand (RBNZ) on Wednesday kept its benchmark interest rate unchanged at 2.25%, the lowest level since July 2022, in line with most market expectations, marking the third consecutive meeting without change.

The six-member Monetary Policy Committee at the Reserve Bank of New Zealand saw a complete split in voting, with three members voting to keep rates unchanged, while three other members — the external members — voted in favor of an immediate 25 basis point rate hike. The final decision to hold rates steady was determined by the casting vote of Governor Anna Breman.

In its updated monetary policy statement, the New Zealand central bank confirmed that the war in the Middle East and rising energy prices would keep inflation above the target range this year.

The New Zealand central bank said: “Overall, the official cash rate is likely to need to rise more quickly and to higher levels than anticipated in the monetary policy statement issued in February.”

The bank added: “The pace of official cash rate increases will depend on the extent to which persistent wage and price pressures outweigh the impact of weak economic activity on medium-term inflation pressures.”

Reserve Bank of New Zealand Governor Anna Breman said her view and that of the group supporting her decision were based on the desire to wait for more economic data before taking a tightening step.

Breman explained that the economic impact of the Iranian war and the disruption to shipping in the Strait of Hormuz would continue for a long period even after hostilities cease.

She acknowledged that New Zealand households are going through difficult conditions due to rising prices, but reassured markets that the situation would begin improving next year.

New Zealand interest rates

• Following the meeting, markets raised pricing for the probability of a 25 basis point New Zealand interest rate hike at the July 8 meeting to above 70%.

• Markets also raised pricing for the probability of a 25 basis point rate hike at the September meeting to above 90%, with expectations that New Zealand will deliver three interest rate increases this year.

• Investors will closely monitor the release of several important New Zealand economic data points in the coming period, including inflation, unemployment, and economic growth figures, in order to reassess those expectations.

Gold prices fell by more than 1% on Tuesday as bets on additional US interest rate hikes this year increased after US military strikes on Iran reduced hopes for a peace agreement, pushing oil prices higher and bringing inflation concerns back into focus.

Spot gold fell 1% to $4,526.86 per ounce, while US June gold futures rose 0.1% to $4,527.90 per ounce.

Jim Wyckoff, market analyst at American Gold Exchange, said: “Bond markets believe the Federal Reserve’s next move will be an interest rate hike, and that is a negative factor for the gold market today.”

Kevin Warsh was sworn in as chairman of the Federal Reserve on Friday, taking over leadership of the US central bank amid growing expectations of tighter global monetary policy.

Markets are currently pricing in a 25 basis point US interest rate hike in December. Although gold is considered a hedge against inflation, the non-yielding precious metal struggles in a high interest rate environment.

In another sign of mounting inflation concerns, Brent crude prices rose by more than 3% on Tuesday as uncertainty persisted over the possibility of a peace agreement between the United States and Iran that would allow shipping through the Strait of Hormuz to reopen.

Higher oil prices increase inflationary pressures as manufacturers pass rising costs on to consumers.

Wyckoff added: “Short-term technical indicators still favor sellers, which is also triggering some technical selling activity.”

He noted that markets will closely monitor US personal consumption expenditures price index data for April, due on Thursday, as a key indicator for measuring inflation pressures and determining the future direction of US monetary policy.

In the same context, UBS lowered its year-end gold price forecast by $400 to $5,500 per ounce due to continued risks related to higher yields and a stronger US dollar.

As for other precious metals, spot silver fell 2.1% to $76.43 per ounce, platinum declined 0.9% to $1,950.71, while palladium slipped 0.2% to $1,396.26 per ounce.