Dollar in the dumps on trade, Middle East tensions and data
Updated Updated Thu, 2025 June 12 09:27
* USD crumbles as inflation cools, euro hits nearly four-year peak
* Equities close higher as Oracle reignites AI rally, Boeing drops
* Gold turns higher on rising geopolitical concerns and falling dollar
* Trump suggests Israel attack on Iran not imminent, hints at raising auto tariffs
FX: USD dropped to a fresh three-year low at 97.60 before closing just below the previous year-to-date trough at 97.92. The weekly close is obviously important to confirm the break down. US PPI data showed colling inflation in May, similar to CPI figures. This could open a window to Fed rate cuts, with just over two 25bps moves now priced in for 2025. Most economists are now lowering their estimates for the Fed’s favoured inflation gauge, core PCE. Initial jobless claims now also seem to be on an upward trend. Trump’s latest tariff threats and geopolitical concerns in the Middle East both add to the uncertainty.
EUR is benefitting from dollar outflows and hit a fresh high at 1.1631 before paring some gains. News flow was generally light, with movement a function of USD, while euro headlines were once again dominated by ECB speakers. De Guindos said the use of the US dollar in international funding, payments, or as a reserve currency will not be challenged in the near term. But there is increasing noise around this. Other ECB officials talked about arriving at the neutral rate, but a stronger EUR potentially means softer inflation.
GBP was weighed down by continued data signalling the BoE is potentially behind in its easing cycle. UK GDP contracted by 0.3%m/m in April, which was more than the expected -0.1%. GDP services also fell by 0.4% versus estimates for an unchanged print. Cable still benefitted the pound on the soft dollar, but EUR/GBP rallied above 0.85.
USD/JPY moved down below the 50-day SMA at 144.10 as safe haven currencies, including the Swiss franc were in demand. Initial support sits just above 142. The risk tone deteriorated and geopolitical tensions in the Middle East escalated after Iran was judged to be in violation of IAEA rules, paving the way for a return to sanctions and possible strike from Israel.
AUD was initially softer, following the weaker risk tone before moving higher as the dollar lost ground. AUD/USD moved back on a 0.65 handle. CAD posted fresh highs versus the dollar.
US stocks: The S&P 500 added 0.38% to settle at 6,045. The Nasdaq closed up 0.24% at 21,913. The Dow Jones settled higher at 42,968. The benchmark broad S&P 500 is now up seven of the past nine trading days. It is just 1.61% away from its record close of 6,144 hit on February 19. The index has risen 21.32% from its 2025 closing low on April 8. Only three sectors closed in the red – communication services, consumer discretionary and industrials. Utilities led the gainers with tech not far behind up 1.26% and 1.01% respectively. A soft May PPI report offset geopolitical concerns. Boeing weighed after the 787-8 Dreamliner crash in India. Tesla closed down 2.24% after President Trump said EV chargers are too expensive, while adding Musk does like him. Meanwhile, Trump signed a resolution nixing California’s EV rules. Nvidia’s CEO said he will stop including China in its forecasts amid US chip export controls. Oracle hit all-time highs after strong earnings and an upbeat forecast for the cloud division.
Asian stocks: Futures are mixed. Asian markets traded mixed also after the muted handover Stateside amid more Trump tariff threats and rising geopolitical worries. The ASX eked out a gain on gold and energy stocks. The Nikkei 225 underperformed with tech and exporter weakness on yen strength offsetting gains in the energy sector. The Hang Seng and Shanghai Comp retreated with Hong Kong off three-month highs on tech and rare earth names, in spite of the US-China talks.
Gold moved higher for a second straight day, something not seen since in three weeks. The June high is $3,403with early May highs around $,3439. Haven demand is growing while the softer than expected inflation data bolstered hopes of rate cuts later this year.
Day Ahead – Range breakouts, tariffs and geopolitics
We know that when markets go quiet and ranges are more rangebound, then that can mean we are not far away from a sharp pick-up in volatility. In fact, momentum strategies that we use involve measuring periods of range contraction which are then likely to be followed by range expansion and breakouts. We often write about consolidation and prices trading sideways, in expectation of a big move the longer rangebound price action occurs.
This is to a large extent what we have seen on the Dollar Index, EUR/USD and USD/CHF for example, with sharp moves yesterday after a relative period of calm. This is why chart and technicals can be so useful as you kind of know that something is going to happen on the fundamental side. That said, prices closed off their new lows/highs so tomorrow’s close for the week is crucial to ensure there is more downside to come, and these are not ‘false’ breaks. Regarding the Trump trade ultimatums, we’d probably defer to the ‘TACO’ dictum once again and we’ll await what the POTUS actually does, rather than what he says.
Chart of the Day – USD/CHF breaks down
We don’t often cover this major, but the technical patterns are as good as any with consolidation patterns aplenty. CHF is the best performing major currency this year, up close to 12% versus USD. The downside break in early April with both strong selling of the dollar and buying of the safe haven swissie came after ‘Liberation Day’ and rangebound trading.
So too the April 10 move lower which took prices crucially below the 2015 long-term low at 0.83 and another trough from December 2023 just above here. More recently, yesterday’s breakdown after very tight, sideways trade saw prices move closer to the late April low at 0.8043. This is major support as there is no big level after this until 2011 lows around 0.77.
