The US Dollar Index (DXY) experienced a sharp pullback after reaching multi-month highs, following US President Donald Trump's announcement that he had cancelled scheduled strikes and bombings against Iran planned for Thursday evening [2]. The DXY fell to 99.60 after climbing to a three-month high earlier in the session, as investors locked in profits despite strong US inflation data [1]. According to [2], the index was trading around 99.85 after briefly touching 100.31, its highest level in more than two months.
The Greenback initially strengthened after Trump warned that the United States would hit Iran "very hard" and take control of Iran's Kharg Island and other oil infrastructure facilities. Earlier in the week, both sides exchanged retaliatory attacks across the Gulf region after Iran downed a US Apache helicopter near the Strait of Hormuz. Diplomatic efforts remain ongoing, with Iran reportedly sending a new draft agreement to Qatari mediators for Washington's review [2].
On the economic front, US inflation data showed mixed signals. The Producer Price Index (PPI) rose 0.4% MoM in May and held at 4.9% YoY according to [1], while [2] reported a headline PPI increase of 6.5% YoY in May from 5.7% in April. The Consumer Price Index (CPI) climbed to 4.2% from 3.8%, the highest reading since April 2023 [2]. However, underlying inflation measures suggest the pass-through from rising energy costs has so far been more limited than expected, with Core PPI steady at 4.9% YoY and Core CPI edging up to 2.9% from 2.8% [2].
The retreat in the US Dollar provided relief across major currency pairs. EUR/USD rebounded toward the 1.1580 area after initially falling following the European Central Bank's (ECB) 25-basis-point rate hike, though gains remained limited as ECB policymakers are reportedly leaning toward a July pause if energy prices remain near current levels, while leaving the door open for another possible September rate hike [1]. GBP/USD advanced toward the 1.3420 region, USD/JPY slipped below the 160.00 area to 159.70, and AUD/USD recovered above the 0.7050 mark [1]. Gold prices rose toward $4,190 as the retreat in the US Dollar improved demand for the precious metal [1].
Looking ahead, market participants are focused on Friday's preliminary June University of Michigan Consumer Sentiment survey, which will provide updated readings on one-year and five-year inflation expectations [2].
CONCLUSION
The US Dollar Index retreated from multi-month highs after President Trump cancelled planned military action against Iran, despite strong inflation data. The pullback in the Greenback provided relief to major currencies and boosted gold prices. Market attention now turns to upcoming US consumer sentiment and inflation expectation data for further direction.