The U.S. dollar index rose for a second straight session and hit a 13-month high, strengthening across major currencies as investors continue to digest a hawkish Federal Reserve signal. The stronger dollar weighed on EUR/USD, pushed USD/JPY slightly higher, and pulled down precious metals prices, with August gold on COMEX and July silver both moving lower.
Markets were also influenced by U.S. macro data: the U.S. current account deficit widened in the first quarter, while May new home sales unexpectedly declined, adding to a mixed picture for the economy.
Key takeaways
- Dollar rose: The dollar index climbed about 0.26% to a 13-month high, pressuring both the euro and commodities priced in dollars.
- Rates expectations stayed supportive: Carryover from a hawkish FOMC stance kept the market focused on higher-for-longer interest rates.
- Metals fell: COMEX gold and silver both dropped as the stronger dollar reinforced negative pressure on precious metals.
- Macro data mixed: A larger-than-expected U.S. current account deficit and a drop in May new home sales added volatility to rate expectations.
- FX intervention risk monitored: Japan-U.S. alignment on currency policy and the yen’s level above 160 per dollar increased attention on intervention risk.
What drove the dollar higher
The dollar index added to a week-long advance and reached its highest level in 13 months. The move continued to reflect carryover from last Wednesday’s FOMC messaging, which investors interpreted as support for higher interest rates later in the year. That backdrop helped sustain near-term dollar demand even after the index pulled back from its best levels earlier in the day.
U.S. data offered additional context. The U.S. Q1 current account balance came in at a deficit of $225.8 billion, wider than the $208.9 billion expected. Separately, May new home sales fell 7.3% month over month to a four-month low of 580,000, missing expectations for an increase to 640,000.
While the new home sales print pointed to softer activity, rates pricing still leaned toward Fed caution. In swaps markets, investors were pricing roughly a 32% chance of a 25 basis-point rate cut at the next FOMC meeting scheduled for July 28–29.
FX moves: euro, yen react to policy expectations
EUR/USD slid to a fresh one-year low and was down about 0.31% on the day. The dollar’s strength was the primary headwind for the euro. Additional pressure also came from what markets viewed as diminished prospects for further ECB tightening after ECB President Christine Lagarde’s dovish remarks reduced the expectation for additional rate hikes. Lagarde also indicated she saw no need for a more forceful ECB response to the U.S.-Iran war development.
That said, there was some offset from Eurozone data. Germany’s IFO business confidence index rose 0.6 to 85.6, marginally above the 85.5 expected. Even with that improvement, markets continued to price only a limited probability of ECB action at the next policy meeting on July 23, assigning about a 7% chance for a 25 basis-point rate hike.
In Japan, USD/JPY edged up about 0.11%, with the yen trading just above Monday’s 23-month low. The yen remained under pressure amid concerns the Bank of Japan could be moving more slowly than markets want in its normalization process. Last week, BOJ Deputy Governor Uchida said the BOJ would assess the economic impact of past hikes, implying a slower pace of tightening.
Further, BOJ Governor Kazuo Ueda’s comments kept the pressure contained. Ueda said that with underlying inflation moving toward 2% and financial conditions still accommodative, the BOJ expects to continue increasing the interest rate and adjusting monetary accommodation depending on economic activity, prices, and financial conditions.
Despite the modest yen decline, traders focused on intervention risk. Japanese Finance Minister Satsuki Katayama said she spoke with U.S. Treasury Secretary Scott Bessent and they agreed to take “bold” steps on currencies if needed, while describing greater alignment on foreign-exchange policy. With the yen above 160 per dollar, the market treated the threshold as a key trigger level given historical intervention episodes.
Japan’s May data also provided a baseline for policy expectations. May PPI services prices were unchanged from April at 3.3% year over year, matching expectations and marking the highest reading in 14 months. Ahead of the next BOJ meeting on July 31, markets were pricing only about a 2% chance of a 25 basis-point hike.
Gold and silver drop as the dollar strengthens
Precious metals extended a sharp slide. August COMEX gold was down 2.73%, falling about 113.10, while July COMEX silver fell 4.76%. The broader pattern reflected weakness in metals following the dollar’s rally to a 13-month high, which is generally a headwind for dollar-priced commodities.
Investors also cited negative carryover from last Wednesday’s FOMC signal that supported higher rates later this year, which contributed to liquidation of long positions in precious metals. The liquidation effect continued to weigh on sentiment even as markets also considered potential support from other macro inputs.
One offset came from energy prices. WTI crude oil fell to a 3.5-month low, which can ease inflation expectations and potentially increase the chance of future monetary policy easing—factors that are typically supportive for gold and silver.
There was also mention of safe-haven demand tied to political uncertainty in the United Kingdom following Keir Starmer’s announcement that he would step down as prime minister. At the same time, fund flows pointed to ongoing selling pressure: long holdings in gold ETFs fell to a 7.5-month low after hitting a 3.5-year high on February 27, while long holdings in silver ETFs dropped to an 11-month low after reaching a 3.5-year high on December 23.
Despite the near-term pressure, central bank demand provided some longer-term support for gold. Reporting highlighted that China’s bullion holdings in the PBOC reserves increased 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.
Bigger picture: rates, carry, and policy cross-currents
Across FX and commodities, today’s price action reflected the same core driver: expectations around interest rates remain the dominant market influence. A firmer dollar can tighten financial conditions and reinforce headwinds for gold and silver, while FX moves are increasingly tied to how quickly major central banks are expected to normalize policy. For Japan, that dynamic is compounded by rising attention to potential intervention if the yen weakens further.
For investors, the near-term question is whether the dollar’s strength persists as the market digests new U.S. data and whether the BOJ and ECB paths diverge enough to widen interest-rate differentials.
Traders will likely watch upcoming central bank messaging and additional U.S. data for fresh signals on the path of rates. With FOMC and major European and Japanese policy meetings already on the calendar, the market pricing of cut versus hike odds could quickly reshape FX and precious metals pricing if new evidence shifts expectations.
