The US dollar index slipped late in the week but ended higher on safe-haven demand as Israel-Iran tensions grew. Trump gave Iran two weeks to halt its nuclear program. The Fed held rates and signaled two cuts in 2025, warning tariffs could lift inflation. EUR/USD was flat. The dollar rose early, then eased, helping the euro recover. Lagarde’s comments reinforced a hawkish ECB outlook. The pound weakened after the BoE held rates with a split vote. The yen rebounded toward 145 on strong inflation data but still posted weekly losses.
Gold fell to $3,350, ending a three-week rally as safe-haven selling picked up amid Middle East conflict. Trump’s potential action against Iran and Powell’s inflation warning weighed on sentiment. Silver dropped 2% to $35.60, its third loss in a row after hitting 13-year highs. A major metals discovery in Argentina also pressured prices.
Bond markets saw strong buying amid geopolitical tensions and rising rate cut expectations. Despite Powell’s tariff-driven inflation warning, 10-year US Treasury yields fell 14 basis points to around 4.40% for the week. Japanese and German 10-year bond yields also declined on similar concerns.
The Bank of Japan kept its benchmark rate at 0.5%, the highest since 2008, in line with expectations. The central bank remained cautious amid geopolitical tensions and unresolved U.S. trade issues. It confirmed plans to gradually reduce bond purchases, signaling a slow shift from its ultra-loose stance.
Retail sales in the U.S. fell by 0.9% in May, marking the biggest monthly drop since January. The decline was broad, led by auto sales, building materials, and gas stations, as consumers cut back ahead of potential tariff-related price increases.
UK annual inflation eased slightly to 3.4% in May, driven by falling transport and housing costs. A correction in vehicle tax data also contributed to the decline. However, food and household goods saw price increases, and overall services inflation remained elevated.
Euro area inflation declined to 1.9% in May, below the ECB’s 2% target. The fall was mainly due to a sharp slowdown in services inflation and lower energy prices. Core inflation also dropped to its lowest since early 2022.
U.S. jobless claims dropped slightly to 245,000 in mid-June but stayed near recent highs, pointing to a gradually softening labor market. Continued claims remained close to their highest levels in over three years.
The Federal Reserve held rates steady at 4.25%–4.50%, maintaining a cautious stance. It still expects two cuts later in 2025 but revised its economic outlook downward, projecting slower growth and higher inflation due to tariff effects.
The Bank of England kept rates at 4.25% in a 6-3 vote. Three members supported a cut to 4%. The BoE warned of ongoing inflation risks from energy and trade uncertainty, while also noting sluggish GDP growth and easing labor market conditions.
The dollar stayed firm on safe-haven flows as Middle East tensions escalated. The Fed’s cautious stance and trade-related risks supported the greenback. The yen rebounded on strong inflation data and hawkish BoJ signals. The euro held steady amid a hawkish ECB tone, while the pound slipped after a divided BoE decision.
Gold dropped to a one-week low near $3,350 as investors sold to cover broader market losses. Rate concerns and Middle East tensions added pressure. Silver also declined after a recent rally, impacted by profit-taking and news of a massive metals discovery in Argentina.
U.S. equity markets were mixed. The Nasdaq and S&P 500 held steady, while the Dow edged lower. Retail and consumer stocks underperformed, while tech showed a split performance with gains in Microsoft and Netflix, and losses in Meta and Google.
Oil inventories are nearing depletion, increasing supply risks and supporting prices. Aramco estimates less than 6 billion barrels remain after over 1 billion barrels were drawn this year, while the IEA is preparing a 100-million-barrel release. The US 10-year Treasury yield stabilized near 5.31% on Wednesday, close to 24-year peaks, as markets awaited the Fed's minutes.
The dollar index steadied around 102 on Tuesday, near its highest since April 2025, as the euro weakened on French fiscal and political concerns and Spain's upcoming snap election, yet stabilized near 1.1220 after touching its lowest level since May 2025.
Detail
Weak US Jobs Ease Fed Hike Bets (5 – 9 October)Weak US labor market data shifted the monetary policy outlook after September nonfarm payrolls rose by only 29,000, well below the 90,000 forecast, while prior months were revised lower. Unemployment rose to 4.2%, and wage growth slowed to 3.0%, cutting the probability of an October Fed hike to around 20%. The Dollar Index fell below 102 after the report, but remained on course for a third consecutive weekly gain.
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