Dollar Pressure Mounts Amid US-South Korea Currency Talks
The dollar index (DXY00) has decreased by -0.32% today. This decline follows a Bloomberg report indicating that the US and South Korea engaged in forex discussions on May 5, which has led to speculation that President Trump may support a weaker dollar. Additionally, rising strength in stocks has diminished liquidity demand for the dollar. However, the dollar rebounded from its lowest level after Fed Vice Chair Jefferson’s hawkish comments suggested that inflation could rise from US tariff policies.
According to Bloomberg, the discussions between the US and South Korean governments earlier this month have fueled further speculation that the Trump administration is open to a weaker dollar. This could potentially make exchange rates a topic in upcoming trade negotiations. Administration officials have previously stated that Asian currencies’ weakness against the dollar offers regional exporters an unfair edge over US competitors.
Fed Vice Chair Jefferson has revised his 2025 US growth forecast downwards, although he predicts continued expansion. He noted that if the announced tariff increases are maintained, they are likely to hinder disinflation efforts and could lead to a temporary surge in inflation.
The markets are currently pricing in an 8% chance of a -25 basis point rate cut following the upcoming FOMC meeting set for June 17-18.
Euro’s Mild Gains Against Dollar
The EUR/USD (^EURUSD) is up by +0.21% today, primarily due to the dollar’s weakness. Additionally, a rise in the 10-year German bund yield to a one-month high has strengthened the euro’s interest rate differentials, providing further support.
Trade concerns between the US and EU continue to limit the euro’s gains. President Trump recently described the European Union as “nastier than China” in the context of trade negotiations. Treasury Secretary Bessent also pointed out that the EU faces a “collective action problem,” impeding trade discussions and suggesting that negotiations may progress slowly.
Swaps suggest an 87% probability of a -25 basis point rate cut by the ECB at their policy meeting scheduled for June 5.
Yen Strengthens Against Dollar
The USD/JPY (^USDJPY) has dropped by -0.87% today as the yen rises against the dollar. Market speculation that President Trump favors a weaker dollar, stemming from the recent US-South Korea currency policy discussions, is bolstering the yen. The yen is also benefiting from insights released after the April 30-May 1 BOJ meeting, indicating ongoing commitments to raise interest rates and normalize monetary policy.
Japan’s April PPI eased to +4.0% year-over-year, down from +4.3% in March, aligning with market expectations.
Precious Metals Experience Declines
June gold (GCM25) is down -54.20 (-1.67%), while July silver (SIN25) is down -0.615 (-1.86%). Precious metals are sharply lower today, with gold hitting a five-week low. The decline is attributed to fund liquidation of long gold positions due to easing US-China trade tensions, as both countries recently agreed to reduce tariffs on each other’s goods. Furthermore, a rally in the stock market has diminished safe-haven demand for precious metals.
Despite the weaker dollar being typically positive for precious metals, other factors are contributing to today’s decline. The speculation from the US-South Korea talks supporting a weaker dollar is generally viewed as bullish for these assets. Rising inflation expectations are also supporting gold demand as an inflation hedge, following an increase in the US 10-year breakeven inflation rate to a six-week high. Persistent geopolitical risks, particularly in the Middle East, continue to bolster safe-haven interest in precious metals, amidst ongoing conflicts and military actions.
On the date of publication, Rich Asplund did not hold (either directly or indirectly) any positions in the mentioned securities. All information in this article serves informational purposes only. View the Barchart Disclosure Policy
here.
The views expressed in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc.
