Dollar Reverses Lower on Dovish US Economic Prints
The US dollar index (DXY) lost 0.47% on Thursday, May 29, reversing a brief early-session rally to fall from a one-week peak. The currency's retreat was driven by a cluster of US data releases that painted a softer picture of the domestic economy, tilting the macro narrative toward a more accommodative Federal Reserve stance.
Among the most notable prints, weekly initial jobless claims jumped by 14,000 to 340,000, a figure well above the 230,000 that analysts had anticipated. Even more striking, continuing claims climbed by 22,000 to 1.919 million, marking a three-and-a-half-year high. Consensus had pointed to a decline toward 1.893 million, making the upside surprise a clear signal of labor-market softening.
Inflation data also shifted in the dovish direction. The first-quarter core PCE price index was revised downward to 3.4% quarter-over-quarter from the previously reported 3.5%, suggesting that underlying price pressures are moderating more quickly than first indicated. By contrast, first-quarter GDP was revised slightly upward to a -0.2% annualized rate from the earlier -0.3% reading, a modest positive that nonetheless failed to offset the broader weakness in the data pack.
The dollar's losses widened later in the session after April pending home sales came in at a -6.3% month-over-month decline, far beyond the -1.0% drop economists had forecast and representing the steepest monthly drop in more than two and a half years. Additionally, a broader rally in global equities reduced the liquidity-driven demand for the dollar as a funding currency.
Trade Court Ruling on Trump Tariffs Adds Near-Term Complexity
Earlier in the day, the dollar had briefly firmed after the US Court of International Trade delivered a unanimous ruling late Wednesday that President Trump had improperly invoked a national-emergency statute to underpin his so-called "Liberation Day" tariffs on imported goods worldwide.
The court's order specifically targets the across-the-board 10% tariff on global imports, the elevated rates imposed on China and several other nations, and the fentanyl-related duties levied on China, Canada, and Mexico. Tariffs grounded in separate legal authorities, including Section 232 and Section 301 measures covering steel, aluminum, and automobiles, remain unaffected by the decision. The administration was given 10 days to comply with the court's directive.
Despite this potentially market-moving legal development, the ruling provided only a fleeting boost to the dollar. By midday, the weaker economic data and the broader risk-on tone in equity markets had more than erased the currency's early gains.
Euro and Yen Rebound as Dollar Weakens
The euro, which had been trading near a one-and-a-half-week low in overnight hours, staged a recovery and gained 0.61% in the EUR/USD pair. The single currency initially dipped further when the dollar's brief spike on the tariff ruling rippled through the market, but the subsequent softening of US data and the equity rally allowed the euro to reclaim lost ground. In the interbank rate market, swap contracts are pricing in a 99% probability that the European Central Bank will deliver a 25-basis-point rate reduction at its June 5 policy meeting.
The Japanese yen, meanwhile, climbed 0.40% against the dollar in USD/JPY, recovering from a two-week trough. The greenback's retreat on dovish US data, combined with lower US Treasury yields, provided a tailwind for the yen. Domestically, Japan's May consumer confidence index rose by 1.6 points to 32.8, topping the 31.8 that forecasters had expected, adding an additional positive for the currency. The yen did experience a brief initial loss when the dollar spiked on the tariff ruling, and the broad equity rally also trimmed safe-haven flows into the Japanese currency.
Precious Metals Rally on Lower Yields and Safe-Haven Demand
Precious metals reclaimed early losses and finished higher on the day. June-dated gold (GCM25) advanced $20.60, or 0.63%, while July silver (SIN25) edged up $0.110, a 0.33% gain. The metals' rebound was fueled by the dollar's slide and the accompanying drop in Treasury yields, which reduced the opportunity cost of holding non-yielding assets.
Gold had touched a one-week low earlier in the session, partly on the tariff ruling and partly because the broad equity rally dimmed safe-haven appeal. However, persistent uncertainty surrounding global trade policy, along with ongoing geopolitical flashpoints in Ukraine and the Middle East, continued to underpin demand for the metal as a store of value. One headwind for the yellow metal was the US 10-year breakeven inflation rate, which slipped to a two-week low, easing the inflation-hedge rationale that often supports gold prices.
Looking ahead to the Federal Reserve, market participants are pricing in just a 2% probability of a 25-basis-point rate cut at the June 17-18 FOMC meeting, reflecting that the dovish data prints, while notable, have not yet shifted expectations dramatically for the near-term policy path.
This article is for informational purposes only and does not constitute investment advice.