The U.S. dollar index slipped on Friday, dragged down by a sharp drop in crude oil prices and softer consumer sentiment data, though gains later reversed as Minneapolis Fed President Neel Kashkari urged vigilance on inflation. Against the backdrop, gold and silver rallied on the weaker dollar and the renewed pullback in inflation expectations tied to oil.
Key takeaways
- Dollar: The dollar index fell about 0.07% as oil slid more than 3% and the University of Michigan consumer sentiment gauge missed key expectations.
- Catalyst: WTI’s move to a four-month low eased inflation expectations, but Kashkari’s hawkish comments later supported the dollar.
- Precious metals: August gold ended up 1.20% and July silver rose 1.48%, supported by the weaker dollar and risk-off sentiment.
- Euro: EUR/USD advanced 0.12% with oil weakness seen as favorable for the energy-importing Eurozone.
- Yen: USD/JPY edged lower by 0.04% after Japan’s Tokyo inflation printed stronger than expected, but intervention risk continues to loom.
What drove the dollar lower — and why it bounced
Friday’s dollar weakness tracked broad relief in inflation expectations after crude oil prices tumbled more than 3% to a four-month low. Lower energy prices tend to reduce near-term inflation pressure, which can shift investor expectations toward a less restrictive Federal Reserve path—an inherently bearish setup for the dollar.
Another early headwind came from the University of Michigan’s U.S. consumer sentiment update. The June reading was revised upward to 49.5, but remained below expectations of 50.0. The report left one-year inflation expectations unchanged at 4.6%, while five-to-ten-year inflation expectations were revised down by 0.1 percentage point to 3.3%, in line with market expectations. Together, the data helped weigh on the currency after it had already been pressured by oil.
However, the dollar’s downside was not sustained. It recovered from its weakest level of the session following Kashkari’s remarks. The Minneapolis Fed president said he is “concerned about inflation” and favored an interest-rate increase this year, a posture that markets generally read as less dovish than implied by earlier price action.
Wholesale and retail inventory signals add nuance
In the background, U.S. inventory data offered a mixed picture. U.S. May wholesale inventories rose 0.3% month over month, below the 0.4% expectation. By contrast, May retail inventories increased 0.6% month over month, stronger than the 0.5% forecast. That combination suggested uneven demand and stocking patterns across sectors—supportive of volatility rather than a single clear trend for the dollar.
Interest-rate pricing also reflected the tug-of-war. According to swaps market pricing, investors were discounting roughly a 30% chance of a 25 basis point rate cut hike at the next FOMC meeting on July 28–29.
FX moves across Europe and Japan
EUR/USD: The euro edged higher, rising 0.12% on Friday. Analysts pointed to the weaker dollar as the immediate support. The selloff in crude also played into the euro story: a sharp decline in energy costs is often viewed as beneficial for Europe, which relies heavily on energy imports. Still, an ECB inflation-expectations update was mixed—shorter-term expectations eased, while longer-term expectations held up.
According to the ECB’s May expectations report, the one-year CPI expectation fell to 3.5% from 4.0%, below the 3.9% forecast. The three-year expectation was unchanged at 2.9%, above the 2.8% forecast. Markets priced about a 7% chance of a 25 basis point ECB rate hike at the July 23 meeting.
USD/JPY: The dollar versus the yen edged lower by 0.04%. The yen found support after Japan’s Tokyo CPI inflation for June rose more than expected, a potentially hawkish signal for the Bank of Japan. Prices increased 1.7% year over year, surpassing the 1.6% estimate, while the core measure excluding fresh food and energy rose 1.9% year over year, again topping expectations of 1.8%.
Still, the yen remained vulnerable near recent lows. USD/JPY traded just above Thursday’s 39-year low amid concerns the BOJ is moving slowly toward normalization. In addition, intervention risk rose after Japanese Finance Minister Satsuki Katayama said she spoke with U.S. Treasury Secretary Scott Bessent and that the two countries agreed to take “bold” steps on currencies if needed, with foreign-exchange policy described as increasingly aligned.
Oil’s decline also provided a secondary tailwind for the yen, since Japan imports more than 90% of its energy. A 4% drop in Japan’s Nikkei Stock Index on Friday further increased demand for perceived safe havens, though the currency’s broader direction stayed constrained by the BOJ outlook and intervention sensitivity. Markets were discounting only about a 1% chance of a 25 basis point BOJ hike at the July 31 meeting.
Gold and silver surge as the dollar softens
Precious metals gained sharply on Friday. August COMEX gold settled up 48.70 (or 1.20%) and July COMEX silver rose 0.863 (or 1.48%). The weaker dollar was a key driver. The crude oil plunge also mattered for metals through the inflation channel: lower energy prices can reduce expected inflation, which can shift central-bank expectations toward easing—typically supportive for non-yielding assets such as gold.
Equities weakness contributed to the bid as some investors rotated toward safe havens. That said, price action also reflected ongoing push-pull between macro factors and positioning. Precious metals had pulled back from their best levels earlier in the session after Kashkari said he favors an interest-rate increase this year, a headwind for gold and silver via higher-real-rate expectations.
Fund flows added another layer. Data cited indicated long holdings in gold ETFs fell to a 7.5-month low after reaching a 3.5-year high on February 27, and long silver ETF holdings dropped to an 11-month low after peaking at a 3.5-year high on December 23. At the same time, official buying continued to provide structural support: the report said bullion held in China’s PBOC reserves increased by 320,000 ounces to 74.96 million troy ounces in May, the largest monthly rise in 17 months and the nineteenth consecutive month of reserve increases.
Bigger picture: rates and oil remain the swing factors
Friday’s currency and metals moves underscored how sensitive markets are to the interaction between energy prices, inflation expectations, and Fed/central-bank messaging. Oil’s sharp decline helped push the dollar lower and lift gold, but hawkish policy signaling quickly altered expectations and reversed part of the move.
Investors will likely focus next on additional inflation and central-bank communication ahead of the next set of policy milestones, including the FOMC meeting on July 28–29 and scheduled ECB and BOJ policy meetings on July 23 and July 31, respectively, as well as any new evidence on whether falling energy prices translate into durable disinflation.
