The U.S. dollar slid to a six-week low on Thursday, with the dollar index ending the session down 0.99%. The retreat followed weaker-than-expected growth and cooling inflation data that reinforced a more dovish outlook for the Federal Reserve, while renewed pressure intensified after the Japanese yen surged amid reports of possible currency-market intervention by Japanese authorities.
Across currency and commodities markets, the euro gained ground on the dollar’s weakness, precious metals rose as the dollar and policy-rate expectations shifted, and investors focused on upcoming central bank decisions including the Bank of Japan and the ECB later this month.
Key takeaways
- Dollar falls: The dollar index ended down 0.99% after U.S. data pointed to softer growth and easing inflation.
- Catalyst: U.S. second-quarter GDP came in below expectations and core PCE inflation eased, supporting a more dovish Fed narrative.
- FX implications: The yen strengthened to a 2.5-month high versus the dollar amid signs of potential intervention; the euro rallied as the dollar weakened.
- Metals supported: August gold and September silver settled higher as the dollar tumbled and safe-haven demand increased.
- Policy watch: Markets continued to price limited near-term tightening by both the Fed and the BOJ, while looking to upcoming meetings for direction.
What drove the dollar lower
U.S. economic releases shifted rate expectations for the Federal Reserve. Data showed second-quarter GDP growth of 1.5% on a quarter-over-quarter annualized basis, missing the 2.0% expectation. Inflation also cooled: the June core personal consumption expenditures price index eased to 3.3% year over year from 3.4% in May, in line with forecasts and consistent with a slower inflation trajectory.
Separately, the report said weekly initial unemployment claims rose by 9,000 to 197,000, indicating a labor market that remained stronger than expectations of 200,000.
Beyond fundamentals, the dollar’s drop accelerated after Wednesday’s Federal Open Market Committee decision left rates unchanged. On Thursday, losses intensified further after the yen rallied sharply, with the move attributed to signs that Japanese authorities may have intervened to support the currency.
Euro advances as the dollar weakens
EUR/USD rose to a six-week high on Thursday and finished up 0.55%, driven primarily by the dollar’s sharp pullback. The euro also received additional support from data out of the Eurozone.
According to the article, Eurozone second-quarter GDP increased 0.4% quarter over quarter and 1.0% year over year, both stronger than expected. The June employment picture was also supportive: the June unemployment rate was unchanged at 6.3%, slightly better than expectations of 6.2%. Inflation data showed German harmonized CPI rising to 2.8% year over year from 2.4% in June, matching market forecasts.
The report added that Eurozone economic confidence climbed in July, reaching a five-month high, while crude oil prices fell about 1%. With Europe importing most of its energy, the oil decline was described as a tailwind for both growth expectations and the euro.
Yen firms ahead of the BOJ, with policy-rate differentials still key
USD/JPY fell sharply on Thursday, declining 2.57% as the yen jumped to a 2.5-month high. The article cited signs of Japanese intervention in the currency market as a key driver, alongside support from dollar weakness following the FOMC’s decision not to raise rates.
Additional domestic momentum came from the report’s mention that Japan’s July consumer confidence improved more than expected, reaching a five-month high. The move was also reinforced by short covering and position squaring ahead of Friday’s Bank of Japan meeting, where the BOJ was expected to keep rates unchanged.
Still, the article noted that the yen remains constrained by weak interest-rate differentials. Markets were described as pricing no probability of a 25 basis point BOJ hike at the upcoming meeting, while the BOJ’s current policy rate of 1.00% remains well below the Fed’s target range of 3.50% to 3.75%.
Gold and silver rise on dollar retreat and safe-haven demand
Gold and silver prices settled higher after the dollar index tumbled. The article said August COMEX gold closed up 63.80 (1.58%), and September COMEX silver finished up 0.928 (1.60%).
According to the report, precious metals benefited from policy-related support after the Fed refrained from raising interest rates and after the Bank of England kept rates unchanged. Safe-haven demand also increased following escalation of hostilities in the Middle East, with U.S. Central Command described as stating that American forces launched airstrikes against dozens of military targets in Iran, followed by retaliation involving drones and missiles into Kuwait and Jordan.
However, the article also pointed to offsets: a sharp rally in equities reduced safe-haven demand, and higher U.S. Treasury yields were cited as a headwind for metals. It added that recent fund liquidation remains a risk, noting that gold ETF holdings fell to a 10-month low and silver ETF holdings declined to a one-year low earlier in the month.
On the longer-term supportive side, the report referenced continued central bank demand, citing news that China’s PBOC increased its bullion holdings by 480,000 ounces to 75.44 million troy ounces in June—marking the twentieth consecutive month of purchases.
What to watch next
Investors are likely to focus on the next leg of central bank signals and the path of rates across major economies, with Friday’s BOJ meeting and the timing of ECB decisions remaining central to currency expectations. In the near term, watch how Treasury yields respond to additional U.S. data and whether risk sentiment stays firm enough to offset safe-haven demand for commodities.
