Dollar Steadies After US Strikes on Iran as Markets Await US Inflation Data

U.S. consumer prices rose 4.2% year-on-year in May, the fastest pace since April 2023, driven largely by a 23.5% annual surge in energy prices tied to the ongoing U.S.-Iran war and disruptions in the Strait of Hormuz. Core CPI rose a more modest 2.9% annually, suggesting energy price pressures have not yet broadly fed into underlying inflation, which analysts said reduced the urgency of a near-term Federal Reserve rate hike. A day later, the producer price index came in hotter than expected at 6.5% annually, reinforcing expectations that the Fed will hold rates steady at its upcoming meeting while keeping a hike later in the year on the table. Gold fell sharply — dropping more than 4% on Wednesday to around $4,078 per ounce before partially recovering Friday after President Trump called off planned strikes on Iran and signaled a peace deal was close — as rising real rates and inflation fears outweighed safe-haven demand. The European Central Bank raised its key interest rate by 25 basis points to 2.25%, its first hike since 2023, citing eurozone inflation hitting 3.2% in May amid energy price surges; ECB President Christine Lagarde defended the move as 'robust across three scenarios' ranging from mild to severe energy shocks. Treasury yields initially rose on the inflation data and Iran tensions before tumbling sharply Thursday after Trump announced he had called off strikes, with the 10-year yield falling more than 8 basis points to 4.453%. The dollar index hovered near two-month highs, traders turned their most bullish on the greenback since February 2025, and the Japanese yen remained under pressure near 160 per dollar ahead of an anticipated Bank of Japan rate hike.