Dollar Gains as Hotter CPI Data Sparks Hawkish Fed Bets

The euro slipped below the 1.1750 mark against the US Dollar on Wednesday, with the EUR/USD pair trading near 1.1735 during early Asian hours as stronger-than-expected US inflation data boosted demand for the Greenback.

According to data released Tuesday by the US Bureau of Labor Statistics, annual consumer inflation accelerated to 3.8% in April from 3.3% in March, surpassing market expectations of 3.7% and marking the highest reading since May 2023. On a monthly basis, the Consumer Price Index (CPI) rose 0.6%, in line with forecasts.

Core inflation, which excludes food and energy prices, increased 0.4% month-over-month and 2.8% annually. The hotter inflation figures reinforced expectations that the Federal Reserve may keep interest rates higher for longer, lending additional support to the US Dollar.

Investors are now turning their attention to the upcoming US Producer Price Index (PPI) report, due later on Wednesday, for further clues on the inflation outlook and the Fed’s policy path.

Meanwhile, comments from European Central Bank officials provided some support to the euro. ECB policymaker Joachim Nagel warned that escalating geopolitical tensions linked to the Iran conflict could increase the likelihood of further rate hikes. ECB Governing Council member Martin Kocher also signaled earlier this week that the central bank should not postpone tightening measures if energy prices remain elevated.

Gold prices remained under pressure on Wednesday, extending losses for a second consecutive session as the US Dollar strengthened on renewed expectations of tighter Federal Reserve policy and escalating geopolitical tensions involving Iran.

The inflation figures reinforced market expectations that the Fed may maintain a hawkish stance for longer. Traders are now pricing in a roughly 35% probability of another US interest rate hike before the end of the year, boosting Treasury yields and supporting the US Dollar.

US bond yields moved higher following the inflation release, with the 30-year Treasury yield briefly touching the 5% level, while the two-year yield remained close to 4%. Rising yields typically reduce the appeal of gold, which does not offer interest income.

Geopolitical developments also remained in focus. Tensions between the United States and Iran intensified after Donald Trump criticized the current ceasefire efforts as “unbelievably weak” and said negotiations were on “massive life support.” Iran also rejected a US-backed proposal aimed at ending the prolonged conflict, citing disagreements over its nuclear program and the strategic Strait of Hormuz.

Despite the recent weakness, analysts caution that the absence of aggressive follow-through selling could limit deeper declines in the near term. Investors are also awaiting fresh catalysts, including the upcoming US Producer Price Index (PPI) report and high-level talks between Donald Trump and Xi Jinping, which could influence market sentiment and short-term direction for gold.

Oil prices retreated on Wednesday, snapping a three-session rally as investors monitored fragile ceasefire efforts in the Middle East and looked ahead to a high-profile meeting between the United States and China later this week.

Market sentiment continued to be shaped by concerns over potential supply disruptions in the Middle East, particularly around the Strait of Hormuz, a critical shipping route responsible for roughly one-fifth of global oil and liquefied natural gas flows.

According to analysts, uncertainty surrounding the region has kept crude prices well supported, even as traders struggle to establish a clear short-term direction. The market remains highly sensitive to geopolitical developments, with fears that any further escalation could trigger another sharp rise in prices.

Oil prices gained more than 3% on Tuesday after hopes for a lasting ceasefire between the US and Iran weakened, reducing expectations that the Strait of Hormuz could soon return to normal operations.

US President Donald Trump said on Tuesday that he did not believe China’s assistance would be necessary to end the conflict with Iran, even as diplomatic prospects appeared to deteriorate further. Tehran has also maintained a firm stance over control of the strategically important waterway.

Attention is now turning to upcoming talks between Donald Trump and Chinese President Xi Jinping in Beijing later this week. China remains the largest importer of Iranian crude oil despite ongoing pressure from Washington.

Supporting oil prices further, industry data from the American Petroleum Institute showed that US crude inventories fell for a fourth straight week last week, while distillate stockpiles also declined, signaling ongoing tightness in energy markets.

Wall Street ended mostly lower on Tuesday as investors reacted to hotter-than-expected US inflation data and mounting geopolitical uncertainty surrounding the ongoing standoff between Washington and Tehran.

Despite Tuesday’s pullback, major US indexes remain close to record highs, supported by strong corporate earnings, continued enthusiasm around artificial intelligence, and earlier optimism that tensions in the Middle East could ease.

Investor sentiment, sentiment weakened after fresh inflation data showed that rising energy costs are continuing to feed into broader consumer prices.

The stronger inflation figures reinforced expectations that the Federal Reserve may keep interest rates elevated for longer than previously anticipated. Market participants increased their bets on potential rate hikes later this year following the release of the CPI data.

The inflation report also arrives during a sensitive period for the US central bank, with current Federal Reserve Chair Jerome Powell nearing the end of his term and expectations growing that Donald Trump could appoint former Fed governor Kevin Warsh as his successor.

Attention is now turning to upcoming talks between Donald Trump and Chinese President Xi Jinping, with investors hoping diplomatic discussions could help ease tensions in the Middle East.

Among individual stocks, GameStop fell 3.4% after eBay rejected its reported $56 billion takeover proposal. Shares of eBay rose 2.1% following the announcement.