The US Dollar stayed firm early Wednesday after beating major peers on Tuesday. Later, the US will hold a 20-year Treasury note auction and release minutes from the Federal Reserve’s April meeting.
The USD rose with higher US Treasury yields and a shift in market pricing for tighter policy. The USD Index rose nearly 0.4% on Tuesday, reached its highest level since early April, and traded near 99.40; CME FedWatch shows nearly a 60% chance of one 25 basis point rate rise by year-end.
Uk Inflation And Sterling
US officials said diplomacy with Iran is still being pursued, while warning military action could resume if talks fail. Iran’s foreign minister said Iran has gained military knowledge from past hostilities and warned of “many more surprises” if war returns.
UK inflation slowed, with CPI at 2.8% in April versus 3.3% in March and below 3% forecasts. PPI Input rose 7.7% year on year, up from 5.3%, and GBP/USD stayed below 1.3400.
Gold fell nearly 2% on Tuesday, hit about $4,450, then recovered above $4,470. EUR/USD traded below 1.1600 after a 0.4% fall, while USD/JPY held near 159.00 after seven straight up days.
Looking back a year ago, we recall the market was pricing in a near 60% chance of a Federal Reserve rate hike, which successfully pushed the Dollar Index toward 99.40. The Fed did follow through with a final quarter-point hike in late 2025, but has been on hold since. With the latest April 2026 core CPI data showing inflation moderating to 2.9%, the narrative has shifted from tightening to the timing of a potential future easing cycle.
Gold And Geopolitical Risk
We remember UK consumer inflation dipping to 2.8% last May, but the sharp rise in producer prices at the time was a clear warning signal. Indeed, UK CPI has proven sticky, with the latest reading for April 2026 coming in at a stubborn 3.5%, well above that of the US. This policy divergence suggests GBP/USD may have upside, especially as it now tests the 1.3550 resistance level, a significant shift from the sub-1.3400 levels of last year.
The geopolitical risks involving Iran that were highlighted in 2025 remain a persistent factor, with tensions in the Strait of Hormuz continuing to flare up periodically. This underlying risk provides a floor for gold, which is no longer facing the headwind of aggressively rising US yields. After seeing a dip toward $4,450 last spring, gold has since established a new range and is currently trading near $4,620, making options that protect against a sudden geopolitical shock look attractive.
In May 2025, USD/JPY was consolidating around 159, and a year later it has ground its way above 161. The Bank of Japan has only made tentative steps away from its ultra-loose policy, leaving the interest rate differential with the US profoundly wide. This carry trade remains appealing, but traders should use options to hedge against the increasing risk of verbal and physical intervention from Japanese authorities at these levels.
