The dollar index (DXY00) is down by -0.55% today. The dollar is retreating today after US June consumer prices rose less than expected, a dovish factor for Fed policy. Also, the benign CPI report has reduced the chances of a Fed rate hike at the FOMC meeting later this month to 12% from 43% on Monday, further weighing on the dollar.

Losses in the dollar are limited after Fed Chair Warsh said the US economy is resilient and growing at a solid pace. Also, escalating hostilities in the Middle East are boosting safe-haven demand for the dollar after US forces launched another round of strikes against Iran today and the UAE said Iran attacked two oil tankers in Omani waters. In addition, today’s +3% jump in crude oil prices to a1-month high raises inflation expectations and could prompt the Fed to tighten monetary policy, a supportive factor for the dollar.

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US Jun CPI eased to +3.5% y/y from +4.2% y/y in May, a slower pace of increase than expectations of +3.8% y/y. Also, Jun core CPI eased to +2.6% y/y from +2.9% y/y in May, better than expectations of +2.8% y/y.

Fed Chair Warsh said the US economy is resilient, growing at a solid pace, and that the labor market is broadly stable and nominal wage growth is solid. He added that the Fed has “no tolerance” for persistently high inflation.

The swaps markets are discounting the odds at 12% for a +25 bp rate hike at the next FOMC meeting on July 28-29.

EUR/USD (^EURUSD) rallied to a 1-week high today and is up by +0.55%. The euro is climbing today after the weaker-than-expected US Jun CPI report knocked the dollar lower. The euro is also garnering support today from higher European bond yields that have strengthened the euro’s interest rate differentials after the 10-year German bund yield rose to a 1.75-month high of 3.144%.

The markets are discounting a +12% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.

USD/JPY (^USDJPY) is down by -0.27% today. The yen is moving higher today on comments from Japanese Finance Minister Satsuki Katayama, who said there are discussions within the ruling party to add government bonds to a tax-free investment program for individuals, which would boost demand for the yen. The yen added to its gains after T-note yields fell on the dovish US Jun CPI report.

Gains in the yen are limited amid strength in crude oil prices as WTI crude is up more than +2% at a 1-month high today, which is negative for Japan’s economy and the yen, as Japan imports more than 90% of its energy.

The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen surpassed that level.

Japan May industrial production was revised downward to +0.1% m/m from the previously reported +0.5% m/m.

Japanese Finance Minister Satsuki Katayama floated the idea of adding government bonds to a tax-free investment program for individuals and said Japan’s Government Pension Investment Fund (GPIF) will adjust its holdings if needed.

The markets are discounting a +2% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.

August COMEX gold (GCQ26) today is up +75.00 (+1.87%), and September COMEX silver (SIU26) is up +1.338 (+2.31%).

Gold and silver prices are moving sharply higher today after the weaker-than-expected US Jun CPI report pushed the dollar and T-note yields lower. Also, the benign CPI report reduced the chance for a Fed rate hike at the FOMC meeting later this month to 13% from 43% before the report, a supportive factor for precious metals.

Today’s +3% jump in WTI crude oil to a 1-month high is bearish for precious metals as it boosts inflation expectations and could persuade global central banks to tighten monetary policy. Also, hawkish comments today from Fed Chair Warsh were negative for precious metals, as he said the Fed has “no tolerance” for persistently high inflation.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low today, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.75-month low today from the 3.5-year high posted on December 23.

Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC boosted its gold reserves.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.