The dollar index (DXY00) edged up by +0.03% on Wednesday after recovering from early losses driven by conflicting signals over a potential US-Iran agreement.
Iranian television reported it had obtained an unofficial draft of a US-Iran memorandum, which stated that US military forces would lift the naval blockade of Iran in exchange for restored commercial shipping through the Strait of Hormuz.
The dollar rebounded sharply after US officials described the unofficial draft obtained by Iranian state television as a “complete fabrication” and “not true.”
Additional support for the dollar came from a stronger-than-expected May Richmond Fed manufacturing survey, where the current conditions index rose +10 to 13, a 4.5-year high, well above expectations of 4.
The dollar initially weakened on Wednesday after WTI crude oil prices plunged more than 5% to a 5-week low, which lowered inflation expectations and raised the prospect of easier Federal Reserve monetary policy.
A rally in the Chinese yuan to a 3.25-year high also weighed on the dollar during early trading before the currency found its footing later in the session.
Swaps markets are currently pricing in just a 4% probability of a 25 basis point rate cut at the next FOMC meeting scheduled for June 16-17.
The EUR/USD fell from a 1-week high and finished down -0.01% on Wednesday, with the euro coming under pressure after German economic advisers to Chancellor Merz cut their 2026 German GDP forecast to 0.5% from a November estimate of 0.9%.
ECB Governing Council member Yannis Stournaras provided a hawkish signal earlier in the session, stating, “The likeliest outcome is an ECB interest rate hike in June,” citing the prolonged conflict in the Middle East and sustained energy price pressures.
Swaps markets are pricing in a 92% probability of a 25 basis point rate hike by the ECB at its next policy meeting on June 11.
The USD/JPY rose +0.14% on Wednesday, with the yen sliding to a 3.5-week low against the dollar after Japan’s April PPI services prices eased to +3.0% year-on-year from +3.3% in March, missing expectations of +3.3%.
Losses in the yen were partially contained by lower Treasury yields and the sharp decline in crude oil prices, which benefits the Japanese economy given that Japan imports more than 90% of its energy needs.
Markets are pricing in a 73% probability of a 25 basis point Bank of Japan rate hike at its next policy meeting on June 16.
June COMEX gold (GCM26) closed down -53.90, or -1.20%, on Wednesday, falling to a 1.75-month low, while July COMEX silver (SIN26) closed down -1.711, or -2.23%.
Gold and silver prices were pressured by the stronger dollar, hawkish ECB commentary, and concerns over industrial metals demand tied to the downgraded German growth outlook.
The crude oil price plunge lowered inflation expectations and may encourage central banks to pursue easier monetary policy, which was cited as a bullish factor for metals prices.
Long holdings in gold ETFs fell to a 5.25-month low on March 31 after reaching a 3.5-year high on February 27, while long holdings in silver ETFs fell to a 9.25-month low on May 5 after hitting a 3.5-year high on December 23.
Bullion held in China’s PBOC reserves rose by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has expanded its gold holdings.
