The US dollar rose against most major currencies on Tuesday and remained on track for monthly gains, supported by growing market concerns over further monetary tightening from the Federal Reserve.

The US Dollar Index, which measures the greenback against a basket of six major currencies, traded at 101.34, close to the 13-month high reached last week.

As a result, the dollar is on course to post a gain of around 2.5% in June, marking its strongest monthly performance since July 2025.

Iran developments

Investors are also closely monitoring developments in the Gulf region ahead of this week’s key US employment report.

The United States and Iran exchanged fresh attacks over the weekend before agreeing to halt hostilities and hold talks in Qatar on Tuesday. The developments have kept investors cautious about the durability of the ceasefire agreement while contributing to higher oil prices.

Federal Reserve

Rising inflation pressures, combined with the unexpectedly hawkish start to Federal Reserve Chair Kevin Warsh’s tenure, have reshaped market expectations for interest rates this year.

At the same time, the AI-driven rally in US equities continues to attract significant capital inflows into American markets.

Jane Foley, Head of FX Strategy at Rabobank, said: “This is very significant because since April of last year there has been a lot of discussion about a structural decline in the dollar. Even if you strongly believe in that view, you still have to acknowledge that there is room for a cyclical rally in the currency.”

She added: “That is exactly what we are seeing now. Part of the move reflects the fact that Federal Reserve rate-hike expectations were priced into markets later than those of the Bank of England and the European Central Bank, whose outlooks shifted earlier during the conflict. In addition, equity markets, particularly since the war began, have seen a clear asset-allocation bias toward the United States.”

Weekly data from the US market regulator showed that investors are holding the largest net bullish position on the US dollar against major currencies since 2019, worth approximately $36.4 billion, according to data compiled by the London Stock Exchange Group.

Investors are now awaiting the US monthly employment report later this week, which could provide a clearer picture of whether current market pricing for Federal Reserve rate hikes is justified.

Money markets currently fully price in one rate hike this year, while assigning roughly a 50% probability to a second increase before year-end.

Gold prices fell in European trading on Tuesday, extending losses for a second consecutive session and losing the $4,000-an-ounce level once again. The metal hit its lowest level in seven months and was on track for its largest monthly loss since 2008, amid renewed selling pressure, particularly from a stronger US dollar against a basket of global currencies.

Markets are awaiting a series of key US labor market reports starting today, which could provide crucial clues about the likelihood of a Federal Reserve interest rate hike this year.

The Price

• Gold prices today: Gold fell 1.85% to $3,942.55 an ounce, the lowest level since November 2025, from an opening level of $4,016.72, after touching an intraday high of $4,037.72.

• At Monday’s settlement, gold lost 1.75%, its first decline in three sessions, pressured by higher oil prices after the United States and Iran exchanged hostile strikes.

Monthly performance

• For June, which officially ends at today’s settlement, gold prices are down more than 13% and are on track for a fourth consecutive monthly loss, as well as their steepest monthly decline since October 2008.

• The sharp monthly loss reflects the continued fallout from the Iran war and concerns over liquidity shortages in global markets.

• The US dollar also climbed to a 13-month high against a basket of global currencies, as investors focused on buying the greenback as the preferred available investment.

US dollar

The US Dollar Index rose 0.35% on Tuesday, resuming gains after a three-session pause and moving back toward its highest levels in 13 months, reflecting renewed strength in the US currency against a basket of major and minor currencies.

The rise was supported by demand for the dollar as the preferred available investment, amid strong expectations that the Federal Reserve will raise interest rates at least once this year.

US interest rates

• According to CME Group’s FedWatch Tool, markets currently price a 68% probability that the Federal Reserve will leave interest rates unchanged at its July meeting, while the probability of a 25-basis-point rate hike stands at 32%.

• Markets also assign a 20% probability that rates will remain unchanged through December, while the probability of a 25-basis-point hike stands at 80%.

• Investors are closely monitoring upcoming US economic data, along with comments from Federal Reserve officials, to reassess those expectations.

• US job openings data for the end of May will be released later today, followed by ADP private employment data for June on Wednesday. Weekly jobless claims and the official June employment report are due on Thursday.

Gold outlook

Edward Meir, analyst at Marex, said: “We have high inflation, expectations of higher interest rates, and a strong dollar, and that is overshadowing all the other positive factors that would normally support gold prices.”

Meir added that if those pressures persist, gold could fall to a range between $3,500 and $4,400 in the second half of this year.

SPDR

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Monday, leaving total holdings at 1,005.08 metric tons, the lowest level since September 24, 2025.

The euro resumed its decline against a basket of major global currencies during European trading on Tuesday, falling against the US dollar after a three-day recovery streak and moving back toward its lowest level in 13 months. The single currency is now on track for a second consecutive monthly loss as investors continue to favor the US dollar as the preferred investment and reserve currency in the foreign exchange market.

Later today, Germany will release its June inflation report, which is expected to provide important clues about whether the European Central Bank could raise interest rates again before the end of the year.

The Price

• EUR/USD fell 0.25% to $1.1395 from an opening level of $1.1422, after touching an intraday high of $1.1426.

• The euro closed Monday up 0.35% against the US dollar, marking its third consecutive daily gain as the currency continued to recover from its 13-month low of $1.1325.

• In addition to bargain buying from lower levels, the euro also benefited from the agreement between the United States and Iran to halt hostilities and resume technical negotiations under the previously agreed 60-day framework.

Monthly performance

• For June, which officially concludes at today’s settlement, the euro is down 2.3% against the US dollar and remains on track for a second straight monthly loss.

• The decline reflects strong demand for the US dollar following the Federal Reserve’s hawkish policy meeting under its new chairman, Kevin Warsh.

• Demand for the dollar as a safe-haven alternative has also been supported by the fallout from the Iran conflict and the continued military tensions between the United States and Iran.

European interest rates

• Reports indicate that the European Central Bank is considering pausing further policy normalization in July if energy prices remain near current levels.

• Money markets continue to price roughly a 30% probability of a 25-basis-point ECB rate hike at the July meeting.

• Investors are now awaiting Germany’s June inflation data later today, which could significantly reshape expectations for European interest rates.

Euro outlook

According to Economies.com, if German inflation data comes in softer than market expectations, the likelihood of another ECB rate increase this year could decline further, potentially leading to additional losses for the euro against a basket of global currencies.

The Japanese yen weakened against a basket of major and minor currencies during Asian trading on Tuesday, extending its losses for a second consecutive session against the US dollar and falling to its lowest level since 1986. The move has fueled speculation that Japanese authorities may intervene in the foreign exchange market to defend the currency against excessive volatility.

Finance Minister Satsuki Katayama said the government remains prepared to take appropriate action against excessive exchange-rate fluctuations. Meanwhile, Chief Cabinet Secretary Minoru Kihara stated that Japan would continue efforts to build an economy that is less vulnerable to currency swings.

The Price

• USD/JPY rose 0.3% to ¥162.40, its highest level since December 1986, up from an opening level of ¥161.93. The pair touched an intraday low of ¥161.85.

• The yen ended Monday down 0.15% against the US dollar, marking its fifth loss in the last six sessions, as concerns over the widening interest-rate gap between Japan and the United States continued to weigh on the currency.

Monthly performance

• For June, which concludes officially at today’s settlement, the Japanese yen is down around 2.0% against the US dollar and is on track for a second consecutive monthly decline, as well as its largest monthly loss since October 2025.

• The monthly weakness reflects strong investor demand for the US dollar following the hawkish Federal Reserve meeting under its new chairman, Kevin Warsh.

• Rising expectations for additional Federal Reserve rate hikes this year have renewed concerns about the widening yield differential between the United States and Japan in favor of the dollar.

Japanese authorities

Japanese Finance Minister Satsuki Katayama said on Tuesday that the government stands ready to take appropriate measures against excessive currency volatility.

“That includes decisive action, as agreed between Japan and the United States,” Katayama said.

Chief Cabinet Secretary Minoru Kihara also told reporters that the government would continue efforts to reduce the economy’s exposure to exchange-rate fluctuations while remaining ready to intervene in currency markets when necessary. He declined to comment directly on the current level of the yen.

Views and analysis

• Julia Wang, Chief Investment Officer for North Asia at Nomura, said Japan could intervene in the foreign exchange market following the yen’s slide to multi-decade lows, although she expects any broader market impact to be short-lived.

• Wang added that while intervention is not officially tied to any specific exchange-rate level, a new cycle low for the yen could increase domestic concerns about currency weakness and raise the likelihood of official action.

• She noted that the broader outlook for the yen remains weak because large interest-rate and real-yield differentials between Japan and the United States continue to favor carry trades, where investors borrow cheaply in yen and invest in higher-yielding assets elsewhere.

• Matt Simpson, Senior Market Analyst at StoneX, said Japan’s Ministry of Finance would intervene if it could, but it faces a difficult challenge while moving against the tide of a hawkish Federal Reserve.

• Simpson added that if US economic data delivers a surprise in favor of monetary easing later this week, Japanese authorities could seize the opportunity to intervene more aggressively while the dollar is under pressure. Until then, intervention threats are likely to remain largely verbal.

Japanese interest rates

• Market pricing for a 25-basis-point rate increase by the Bank of Japan at its July meeting remains below 25%.

• Investors are awaiting additional inflation, labor market, and wage data from Japan that could force a reassessment of those expectations.