U.S. Dollar Strengthens as Treasury Yields Rise

The dollar index (DXY00) recovered from a one‑week low on Friday, ending the session up 0.07%. The fragile and uncertain situation in the Middle East is bolstering safe‑haven demand for the dollar, following Iran’s pledge to respond to recent U.S. attacks on Iran’s rail and maritime infrastructure. Higher Treasury‑note yields on Friday also reinforced the dollar’s interest‑rate differential.

Initially, the dollar slipped lower as easing geopolitical tensions reduced crude‑oil prices, after an American official indicated that U.S.–Iran talks over a permanent peace deal are ongoing and that the United States remains committed to a diplomatic solution. Al Jazeera reported that Qatar supports efforts to defuse U.S.–Iran tensions. Lower oil prices dampen inflation expectations and could prompt the Federal Reserve to ease monetary policy, a headwind for the dollar.

Swaps markets are pricing a 34% probability of a 25‑basis‑point rate hike at the upcoming FOMC meeting on July 28‑29.

EUR/USD (^EURUSD) declined 0.12% on Friday, pressured by a stronger dollar. The euro also fell after weaker‑than‑expected Italian May industrial‑production data, which dropped 0.3% month‑over‑month, the steepest decline in four months. However, lower crude‑oil prices, which benefit the Eurozone’s energy‑intensive economy, limited the euro’s losses.

Italian May industrial production fell 0.3% month‑over‑month, missing the consensus forecast of a 0.2% decline.

Markets are assigning roughly a 12% chance of a 25‑basis‑point rate hike by the European Central Bank at its July 23 policy meeting.

USD/JPY (^USDJPY) slipped 0.42% on Friday, as the yen strengthened after Japanese Finance Minister Satsuki Katayama urged pension funds to increase domestic‑asset investments. A stronger‑than‑expected June producer‑price index—up 7.1% year‑over‑year, the fastest rise in 3½ years—supports a hawkish outlook for the Bank of Japan and bolsters the yen. Moreover, Reuters reported that the BOJ might raise its 2026 growth forecast at its upcoming meeting.

The risk of currency‑market intervention to support the yen is elevated, given that the yen remains above 160 per dollar—a 39‑year low. Japanese authorities have intervened several times when the yen reached that level.

Japan’s June PPI rose 7.1% year‑over‑year, exceeding the 6.8% consensus and marking the strongest increase in 3.25 years.

Markets are pricing a modest 2% chance of a 25‑basis‑point BOJ rate hike at the July 31 policy meeting.

August COMEX gold (GCQ26) fell 27.10 points (-0.65%) on Friday, while September COMEX silver (SIU26) slipped 0.583 points (-0.96%).

Gold and silver prices settled lower, pressured by a rally in equities that reduced safe‑haven demand. Easing geopolitical tensions—after an American official indicated that U.S.–Iran negotiations over a permanent peace deal are continuing—also curbed safe‑haven appeal. Rising Treasury yields further weighed on metal prices.

Fund managers have been liquidating precious‑metal positions, pushing gold ETF holdings to a nine‑month low after peaking at a three‑year high in late February. Silver ETF holdings similarly slipped to an 11‑month low after reaching a three‑year peak in December.

Robust central‑bank demand for gold remains supportive; China’s People’s Bank of China reported a 320,000‑ounce increase in its gold reserves in May, the largest monthly rise in 17 months and the nineteenth consecutive month of reserve accumulation.

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