The dollar index (DXY00) Wednesday rose by +0.06%.  The dollar on Wednesday recovered from early losses and posted modest gains. Short covering emerged Wednesday to push the dollar higher after Fed Vice Chair Jefferson said inflation could rise from US tariff policies.  The dollar also recovered after Bloomberg reported that a person familiar with the matter said US officials seeking to negotiate trade deals around the world are not working to include currency policy pledges in agreements.  Higher T-note yields on Wednesday were also supportive of the dollar. 

The dollar on Wednesday initially moved lower after Bloomberg reported that the US and South Korean governments discussed currency policies earlier this month, bolstering speculation the Trump administration is open to a weaker dollar and will make exchange rates a feature of upcoming trade talks.  President Trump and other administration officials have argued that weakness in Asian currencies versus the dollar has given regional exporters an unfair advantage over US rivals.

Fed Vice Chair Jefferson said he's lowered his 2025 US growth forecast but still sees expansion and, "If the increase in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation.

The markets are discounting the chances at 8% for a -25 bp rate cut after the June 17-18 FOMC meeting.

EUR/USD (^EURUSD) Wednesday fell by -0.08%.  The euro gave up an early advance on Wednesday and turned slightly lower after the dollar recovered from early losses and moved higher.  On Wednesday, the euro initially moved higher after the 10-year German bund yield rose to a 1-month high, strengthening the euro's interest rate differentials and supporting the euro.

Trade concerns between the US and EU are limiting gains in the euro after President Trump said the European Union is "nastier than China" in trying to forge a trade deal. Also, Treasury Secretary Bessent previously said the European Union suffers from a "collective action problem" that's hampering trade negotiations, and trade talks between the US and Europe "may be a bit slower."

Swaps are discounting the chances at 86% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

USD/JPY (^USDJPY) Wednesday fell by -0.49%.  The yen rose against the dollar Wednesday on speculation that President Trump favors a weaker dollar after Bloomberg reported that the US and South Korean governments had discussed currency policies earlier this month. The yen also has a positive carryover from Tuesday when the April 30-May 1 BOJ meeting summary said policymakers remain committed to raising interest rates and normalizing monetary policy.

However, the yen fell back from its best levels Wednesday as T-note yields rose and after Bloomberg reported that US trade negotiators are not pushing for a weaker dollar in trade negotiations. 

Japan's Apr PPI eased to +4.0% y/y from +4.3% y/y in March, right on expectations.

June gold (GCM25) Wednesday closed down -59.50 (-1.83%), and July silver (SIN25) closed down -0.656 (-1.98%).  Precious metals on Wednesday settled sharply lower, with gold falling to a 5-week low.  Fund liquidation of long gold positions is weighing on prices due to the easing of US-China trade tensions after China and the US agreed to reduce tariffs on each other's goods this past weekend.  Also, higher global bond yields on Wednesday weighed on precious metals.  In addition, an easing of global geopolitical risks is bearish for precious metals after India and Pakistan agreed to an immediate ceasefire, and Ukraine President Zelenskiy said he would travel to Istanbul on Thursday for direct negotiations with Russian President Putin.

An increase in inflation expectations supports gold demand as an inflation hedge after the US 10-year breakeven inflation rate rose to a 6-week high Wednesday.  Also, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas conflict continues and as Israel recently launched an airstrike on Houthi rebels in Yemen.