The US dollar is on track on Thursday for its biggest monthly gain in nearly a year, ahead of US inflation data that could reinforce the view of a growing number of investors that the Federal Reserve will be forced to raise interest rates at least once this year.

The dollar hit a 13-month high against the euro on Wednesday, pushing the single currency below the $1.14 level. The dollar’s strength also sent the British pound to its lowest level in seven months and kept the Japanese yen near its weakest level in 40 years at around 161.79 per dollar.

The stronger dollar pushed gold temporarily below $4,000 per ounce for the first time in more than seven months and drove Bitcoin below $60,000 for the first time since 2024.

The Dollar Index, which measures the US currency against a basket of six major currencies, stood near 101.5 points on Thursday after touching a 13-month high of 101.8 points the previous day.

Before the outbreak of the US-Israel war against Iran, traders had expected the Federal Reserve to cut interest rates this year. They now expect at least one rate hike, possibly beginning in October, with roughly a 50% chance of a second hike before year-end.

During this month alone, the yield on two-year US Treasury notes, which reflects short-term interest-rate expectations, has risen by about 14 basis points to 4.15%.

By comparison, German two-year government bond yields have risen by only 2 basis points to 2.56%, while UK two-year government bond yields have fallen by about 9 basis points.

Lee Hardman, currency strategist at MUFG Bank, said the interest-rate market clearly reflects investors’ belief that the Federal Reserve “will back up its hawkish inflation rhetoric by raising interest rates this year.”

He added: “If the Federal Reserve is serious about restoring price stability, significantly tighter monetary policy will be necessary. Therefore, it makes sense for markets to price in additional rate hikes, which has recently supported the US dollar.”

US inflation data in focus

The British pound rose 0.17% to $1.319 after falling on Wednesday to its lowest level since November at $1.314.

The dollar slipped against the Swiss franc to around 0.811 francs, remaining close to an 11-month high.

On the economic front, markets are awaiting the release of May core Personal Consumption Expenditures data, the Federal Reserve’s preferred inflation gauge.

Economists surveyed by Reuters expect the index to rise 3.4%, well above the central bank’s 2% target.

Brent Donnelly, president of Spectra Markets, said: “Further gains for the dollar will require a wider expansion in interest-rate differentials, but in the short term companies need dollars, and they will continue to need them for a few more days.”

He added: “My view is that this creates a positive feedback loop for the dollar, as speculators add new positions and technical indicators continue to move in its favor, but that loop will likely lose momentum soon.”

Further dollar gains could push Japan to carry out its intervention threats in support of the yen, as traders see levels near 162 yen per dollar or higher as a potential intervention zone.

Hirofumi Suzuki, chief currency strategist at SMBC Bank in Tokyo, said: “Given the build-up of short yen positions, the impact of any intervention would be significant if it is carried out.”

Gold prices rose in the European market on Thursday, attempting to recover from a seven-month low and heading toward their first gain in three days, with buying activity from lower levels and attempts to trade above $4,000 per ounce again.

This rise is supported by a pause in the US currency’s advance against a basket of global currencies, as investors await important US Personal Consumption Expenditures data, which will provide crucial clues about the Federal Reserve’s interest rate path this year.

The Price

• Gold prices today: Gold prices rose 0.5% to $4,018.719, from the opening level of $3,999.28, and recorded a low of $3,963.18.

• At Wednesday’s settlement, gold prices lost 2.75%, marking their second consecutive daily loss, and recorded a seven-month low of $3,959.49 per ounce, due to pressure from the rising US dollar.

US dollar

The US Dollar Index fell about 0.15% on Thursday, retreating from a 13-month high of 101.80 points, reflecting a pause in the US currency’s advance against a basket of global currencies.

Aside from profit-taking, the US dollar is retreating as investors refrain from building new long positions ahead of the release of the US Personal Consumption Expenditures report for May, the Federal Reserve’s preferred inflation gauge.

Consumer spending data, along with comments from some Federal Reserve officials, are expected to provide crucial clues about the likelihood of at least one US interest rate hike this year.

US interest rates

• Chicago Federal Reserve President Austan Goolsbee said that with the labor market stable, he is focused on determining whether elevated inflation will remain that way or ease as the impact of higher tariffs fades, and if a solution is reached to the Middle East conflict.

• According to CME Group’s FedWatch Tool, pricing for the Federal Reserve to leave interest rates unchanged at the July meeting currently stands at 66%, while pricing for a 25-basis-point rate hike stands at 34%.

• Pricing for the Federal Reserve to leave interest rates unchanged at the December meeting currently stands at 16%, while pricing for a 25-basis-point rate hike stands at 84%.

Gold outlook

• Matt Simpson, senior analyst at StoneX, said: Gold is seeing bearish momentum this week because of the strength of the US dollar.

• Nikos Tzabouras, senior market analyst at Tradu.com, said: The Federal Reserve’s hawkish shift, which led to a repricing of rate hike expectations, remains the main factor behind the weakness in gold prices.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 4.27 metric tons on Wednesday, marking the second consecutive daily decline, bringing the total down to 1,013.36 metric tons, the lowest level since June 17.

The euro rose in European trading on Thursday against a basket of global currencies, attempting to recover from a 13-month low against the US dollar and heading toward its first gain in four sessions, supported by buying activity from lower levels and a pause in the US dollar's advance ahead of the release of the US Personal Consumption Expenditures report.

Amid falling oil prices, inflationary pressures on policymakers at the European Central Bank are easing, reducing the likelihood of another European interest rate hike this year.

The Price

• Euro exchange rate today: The euro rose more than 0.1% against the US dollar to $1.1371, from today's opening level of $1.1358, and recorded a session low of $1.1348.

• The euro ended Wednesday down 0.2% against the dollar, marking its third consecutive daily loss and touching a 13-month low of $1.1325 amid heavy selling across most global currencies against the US currency.

US dollar

The US Dollar Index fell about 0.5% on Thursday, retreating from a 13-month high of 101.80 points and reflecting a pause in the US currency's rise against a basket of major and secondary currencies.

In addition to profit-taking activity, the dollar is easing ahead of the release of the US Personal Consumption Expenditures report for May, the Federal Reserve's preferred inflation gauge.

Consumer spending data, along with comments from several Federal Reserve officials, are expected to provide crucial clues about the likelihood of at least one US interest rate hike this year.

Global oil prices

Global oil prices fell around 1% on Thursday, extending losses for a fourth consecutive session and hitting four-month lows amid expectations of smoother crude flows through the Strait of Hormuz.

There is little doubt that lower global oil prices reduce concerns about accelerating inflation, supporting the case for the European Central Bank to leave monetary policy tools unchanged for an extended period this year.

European interest rates

• Reports: The European Central Bank is considering pausing monetary policy normalization in July if energy prices remain at current levels.

• Money markets continue to price the probability of a 25-basis-point European interest rate increase in July at around 30%.

• To reassess those expectations, investors are awaiting additional eurozone data on inflation, unemployment, and wages.

Opinions and analysis

Brent Donnelly, President of Spectra Markets, said: "Further gains for the US dollar require a wider interest rate differential, but in the short term companies still need dollars, and that demand is likely to persist for several more days."

He added: "I believe this creates a positive feedback loop for the US dollar, as speculators continue adding new long positions alongside breaks of key technical levels, but that loop is likely to lose momentum and begin fading soon."

The Australian dollar rose in Asian trading on Thursday against a basket of global currencies, attempting to recover from a two-month low against its US counterpart, with moderate buying activity emerging from lower levels following the release of positive Australian labour market data.

The data showed stronger-than-expected growth in new Australian jobs in May, while the unemployment rate retreated from a four-and-a-half-year high, indicating that Australia's labour market is beginning to regain momentum. This could pave the way for the Reserve Bank of Australia to raise interest rates again later this year.

The Price

• Australian dollar exchange rate today: The Australian dollar rose 0.2% against the US dollar to 0.6908, from today's opening level of 0.6894, and recorded a session low of 0.6888.

• The Australian dollar ended Wednesday's trading down about 0.25% against the US dollar, marking its third consecutive daily loss and touching a two-month low of 68.83 US cents, as investors continued to favour the US dollar as the most attractive available investment.

Australian labour market

Figures released by the Australian Bureau of Statistics on Thursday showed net employment increased by 40.3 thousand jobs in May, the strongest pace of job creation since February and above market expectations of a 31.2 thousand increase. In April, employment had declined by 40.7 thousand after being revised lower from a previously reported decline of 18.6 thousand.

Government data also showed the unemployment rate fell to 4.4%, in line with market expectations of 4.4%, after reaching 4.5% in April, its highest level since November 2021.

The data suggests tighter conditions may be returning quickly to Australia's labour market, potentially renewing pressure on policymakers at the Reserve Bank of Australia and strengthening expectations for another Australian interest rate hike later this year.

Australian interest rates

• Following the data release, market pricing for a 25-basis-point interest rate increase by the Reserve Bank of Australia in August remained around 20%.

• To reassess those expectations, investors are awaiting further Australian data on inflation, unemployment, and wages.

Opinions and analysis

Russell Chesler, Head of Investments at VanEck, said: "This is not the clear slowdown signal that markets were hoping for. For an economy that is supposedly losing momentum, Australians are still working and still spending."

He added: "We remain data dependent, but our view is that there could be another interest rate increase during this cycle."