The U.S. dollar surged to a 13-month high on Tuesday, extending support from the Federal Reserve’s latest rate outlook and reinforced by a firmer batch of U.S. data. The dollar’s advance weighed on most major currencies and pressured commodities priced in the greenback, with crude oil falling and gold and silver dropping as investors rebalanced expectations for inflation and monetary policy.
Across markets, the strength in the dollar was also tied to reduced demand for safe-haven assets following an equity rally. While oil’s decline offered some support to euro and yen through energy-price effects, it simultaneously lowered inflation expectations—an offset to the dollar’s gains.
Key takeaways
- Dollar index rose 0.54% to a 13-month high, supported by Fed carryover and U.S. economic data.
- EUR/USD slid to a 2.5-month low as dollar strength dominated, despite hawkish messaging from an ECB official.
- USD/JPY edged higher as the yen weakened toward a 23-month low, with safe-haven demand reduced by stronger risk appetite.
- Gold fell about 2.7% and silver dropped about 5.5% amid dollar strength and a negative carryover from the Fed’s higher-for-longer stance.
- Oil’s -2% drop limited downside in Europe and Japan while also dampening inflation expectations, complicating the outlook for central bank policy.
What drove the dollar higher
Investors pointed to carryover from Wednesday’s Federal Open Market Committee projection, which indicated higher interest rates later this year. That shift in the policy path continued to underpin the dollar as markets weighed incoming data for clues about growth and labor conditions.
Several U.S. releases landed in a direction supportive of the currency. Weekly initial unemployment claims fell by 4,000 to 226,000, near the expected 225,000 level. The June Philadelphia Fed business outlook survey rose by 10.7 to 10.3, surpassing expectations of 10.0. May leading indicators were also steady, rising 0.1% month over month, in line with forecasts.
Rates expectations remained a key channel for FX. According to swaps pricing, the odds for a 25 basis point cut at the next FOMC meeting on July 28–29 stood at 32%.
Commodities weighed on by the greenback
A major counterforce for the dollar came from energy. West Texas Intermediate crude prices fell about 2% to a 3.5-month low, a move that can curb inflation expectations. That matters because softer inflation expectations can reduce pressure for tight policy, which is typically bearish for the dollar.
Still, the immediate impact on commodities was broad. Gold for August delivery on COMEX fell by 118.40, or 2.70%. July COMEX silver dropped by 3.872, or 5.47%. According to the market logic described in the report, the decline reflected dollar strength and negative carryover from Wednesday’s Fed signal of higher rates later in the year.
The report also linked the pressure on precious metals to reduced safe-haven demand after President Trump signed a preliminary deal intended to end the war in the Middle East, which sparked a rally in equity markets and diminished demand for havens.
Another driver cited for the metals move was fund positioning. It described recent liquidation in precious metals holdings, including that long positions in gold ETFs fell to a 7.25-month low on Wednesday after hitting a 3.5-year high on February 27. It also noted that long holdings in silver ETFs slipped to a 10.5-month low on Monday from the 3.5-year high reached on December 23.
Even with those headwinds, the report cited an underlying support factor for gold linked to central bank buying—specifically, news that China’s PBOC increased bullion holdings. It said bullion in China’s 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 of additions.
Currency moves: euro and yen feel the dollar
In foreign exchange, EUR/USD fell to a 2.5-month low and was down 0.25%, with the main bearish factor identified as dollar strength. Losses in the euro were described as limited by hawkish commentary from ECB Governing Council member Martin Kocher, who said the ECB is ready to act at any time to ensure inflation returns to its 2% target, while also warning that consumer prices will remain higher for some time despite a Middle East ceasefire agreement.
Markets are pricing a potential ECB decision less decisively than the Fed’s—according to the report, investors were discounting a 17% chance of a 25 basis point rate hike at the ECB’s next meeting on July 23. Separately, the drop in crude helped cap losses for the euro because Europe imports most of its energy, according to the report.
USD/JPY rose 0.14% as the yen weakened, reaching a 23-month low against the dollar. The report attributed the move to dollar strength following the Fed’s hawkish stance on Wednesday and to reduced safe-haven demand as equities extended gains. It also noted that crude oil’s decline could support Japan through energy-cost effects, with Japan importing more than 90% of its energy.
While yen losses remained constrained, the report flagged rising intervention risk. With the yen trading firmly above 160 per dollar, it said Japanese authorities have intervened several times when the yen approached that level in the past. For rate expectations, it reported markets were assigning a 2% chance of a 25 basis point Bank of Japan rate hike at the next policy meeting on July 31.
Bigger picture: policy expectations vs. inflation signals
The day’s trading underlined a tug-of-war between policy expectations and inflation impulses. Fed carryover and steady U.S. macro data supported a firmer dollar, which tends to pressure dollar-priced assets like gold and silver. At the same time, falling crude oil can reduce inflation expectations, potentially creating room for easier policy down the line and limiting how aggressively the dollar can rally.
For investors, the interaction between rates pricing and energy moves is likely to remain central. With the market currently discounting a limited probability of near-term Fed cuts, any further changes to inflation-sensitive data could quickly shift FX and commodities, especially if oil extends its decline.
What to watch next: upcoming Fed-related signals and additional U.S. economic releases will be important for dollar momentum, while further energy-price developments could influence expectations for inflation. On the policy calendar, attention will also likely turn to the July 23 ECB meeting and the July 31 BOJ decision, given how current pricing reflects low odds of immediate hikes.
