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Dollar firms as Middle East tensions and US inflation data loom

Markets have lifted the estimated chance of two Fed rate rises in 2026 to 50%, while gold slides as real 10-year Treasury yields hit their highest level in over a year.

Reported · Written up by our desk · Major Pairs

The US dollar strengthened at the start of the week amid escalating Middle East tensions, with Donald Trump saying a ceasefire is over and Tehran denying White House claims that it was seeking opportunities for negotiations, Action Forex reports. The shift is reviving the dollar's sensitivity to oil price moves as traders incorporate geopolitics into expectations for potential Fed rate changes.

Investors are also looking ahead to US inflation for June and US Fed nominee Kevin Warsh's testimony before Congress, after Warsh previously sparked market volatility. Action Forex notes that his earlier comments tied to returning consumer prices to target pushed the dollar higher, while later remarks about inflation progress weakened it.

For June, consumer prices are expected to fall 0.1% month on month, the first decline since the pandemic and a sign the measure may have peaked in May, according to Action Forex. The market focus may also turn to core inflation, where FOMC hawks could react to an acceleration from 0.2% to 0.3% month on month.

In commodities, Action Forex says the conflict escalation pushed gold lower toward $4,000 per ounce, as the metal faced headwinds from higher real Treasury yields. The outlet points to 10-year real yields reaching the highest level in over a year, alongside a stronger dollar and a greater likelihood of aggressive Fed tightening.

Latest closeGold $4,128.90 ▼0.0%

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