The dollar index (DXY00) fell from a 2-month high on Thursday, finishing down by -0.17%. The dollar gave up an early advance on Thursday and moved lower after stocks rallied sharply and crude oil prices sank when President Trump said he called off planned strikes against Iran and that a peace deal to end the war was imminent. Thursday’s -2% slump in crude oil prices undercut inflation expectations and could prompt the Fed to loosen monetary policy, a bearish factor for the dollar. The dollar was also pressured on Thursday after weekly US jobless claims unexpectedly rose to a 4-month high, a dovish factor for Fed policy.
The dollar initially moved higher on Thursday amid concerns over the escalation of the US-Iran conflict, which boosted safe-haven demand for the dollar after President Trump said the US would keep attacking Iran and threatened to seize Kharg Island, Iran’s main crude exporting hub.
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The dollar also benefits from safe-haven demand amid the ongoing hostilities between the US and Iran. Late Wednesday, President Trump said the US will continue bombing Iran if it refuses to agree to an interim peace deal. Mr. Trump ordered multiple strikes on Iranian targets on Wednesday, and Iran retaliated by firing on US bases in Kuwait, Bahrain, and Jordan.
US weekly initial unemployment claims unexpectedly rose +4,000 to a 4-month high of 229,000, showing a weaker labor market than expectations of a decline to 220,000.
US May PPI final demand rose +1.1% m/m and +6.5% y/y, stronger than expectations of +0.7% m/m and +6.4%, with the +6.5% y/y gain the largest year-on-year increase in 3.5 years. However, May PI ex food and energy rose +0.4% m/m and +4.9% y/y, weaker than expectations of +0.5% m/m and +5.4% y/y.
The swaps markets are discounting the odds at +4% for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) on Thursday rose by +0.35%. The euro recovered from early losses on Thursday and moved higher after the dollar turned lower, which sparked short covering in the euro. The euro also garnered support on Thursday after the ECB raised interest rates by 25 bp today. Gains in the euro were limited after the ECB cut its 2026 Eurozone GDP estimate and raised its 2026 Eurozone inflation estimate, negative factors for the euro.
The ECB, as expected, raised the deposit facility rate by 25 bp to 2.25% from 2.00% and said, “The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth.”
The ECB cut its 2026 Eurozone GDP estimate to 0.8% from a previous estimate of 0.9% and raised its 2026 Eurozone inflation ex-food and energy forecast to 2.5% from a previous forecast of 2.3%.
The markets are discounting a +62% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) on Thursday fell by -0.41%. The yen rebounded from a 6-week low against the dollar on Thursday and moved higher. Short covering emerged to push the yen higher on Thursday as T-note yields fell. The yen also rose after crude oil prices dropped by more than -2%, which is supportive for Japan’s economy and the yen, as Japan imports more than 90% of its energy. In addition, the yen has support on expectations that the BOJ will raise interest rates at next week’s policy meeting.
Japan Q2 BSI large all-industry business conditions fell to -0.5 from +4.4 in Q1.
The markets are discounting a +95% chance of a +25 bp BOJ rate hike at the next policy meeting on June 16.
August COMEX gold (GCQ26) on Thursday closed down -19.30 (-0.47%), and July COMEX silver (SIN26) closed down -0.739 (-1.14%).
Gold and silver prices extended this week’s selloff on Thursday, with gold sinking to a 6.75-month low and silver falling to a 2.5-month low. Thursday’s rally in the dollar index to a 2-month high weighed on metals. Also, the ongoing hostilities between the US and Iran are keeping crude oil prices elevated, which are boosting inflationary pressures that could prompt the world’s central banks to tighten monetary policy, a bearish factor for precious metals. In addition, Thursday’s ECB rate hike of 25 bp and expectations of a BOJ rate hike at next week’s meeting have fueled liquidation of long positions in precious metals.
However, in post-market trading after Thursday’s close, gold prices jumped more than +$60.00 an ounce when crude prices plunged after President Trump said he canceled planned military strikes against Iran on Thursday and that a peace deal to end the war was imminent.
Precious metals have some support on concerns that hostilities between the US and Iran could escalate, boosting some haven demand for precious metals after President Trump said today that the US will be hitting Iran very hard tonight and “at some point” we will be taking Kharg Island, Iran’s key export hub, and that the US will assume total control of Iran’s oil and gas markets.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 6.25-month low on Wednesday after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 10-month low on Monday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC has boosted its gold reserves.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
