Published by Global Banking & Finance Review®
Posted on June 12, 2025
5 min readLast updated: January 23, 2026
Add as preferred source on GoogleThe US dollar fell as inflation cooled, prompting expectations of Fed rate cuts. The euro hit a four-year high, while safe-haven currencies gained amid geopolitical tensions.
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar slumped on Thursday, as weaker-than-expected U.S. inflation data for May suggested that the Federal Reserve could resume cutting interest rates sooner rather than later, while the safe-haven yen and Swiss franc benefited from rising Mideast tension.
The euro, on the other hand, soared to its highest level in almost four years against the dollar. The greenback also fell to a two-month low versus the Swiss franc and a roughly one-week trough against the yen.
Data showed that the U.S. Producer Price Index (PPI) increased less than expected in May, curbed by lower costs for services like air fares, a report that undermined the dollar. Wednesday's data also indicated cooling inflation, with a lower-than-expected rise in the U.S. Consumer Price Index (CPI).
Vassili Serebriakov, FX analyst at UBS in New York, said higher tariffs are not showing just yet on inflation data, although he noted U.S. growth seemed to be slowing.
"We already priced in two cuts for the Fed this year, which was less than two last week," said Serebriakov. "The data is seen as potentially opening the window for the Fed cutting either a little bit sooner or a little bit more."
Futures tracking the Fed's policy rate showed rising bets the U.S. central bank will deliver a pair of back-to-back interest rate cuts starting in September. Before the data, bets were for a rate cut in September followed by one in December.
Following weaker-than-anticipated readings for producer and consumer prices last month, Nomura has revised lower its forecast for the core Personal Consumption Expenditure (PCE) price index, another inflation measure, to 0.169% from its pre-PPI estimate of 0.349%. That pushes the three-month annualized core PCE inflation lower to 1.52%, the lowest since November 2020.
"Three consecutive benign readings of monthly core PCE inflation suggest that the underlying inflation trend has decelerated recently," wrote Nomura in a research note.
Thursday's U.S. data also showed that the number of Americans filing new applications for unemployment benefits was unchanged at higher levels last week, as labor market conditions continued to steadily ease.
Investors also rushed into safe-haven assets, with geopolitical risks in focus after U.S. President Donald Trump said some U.S. personnel were being moved out of the Middle East because "it could be a dangerous place" and that Washington would not allow Iran to develop a nuclear weapon.
A combination of rising Middle East tensions and concern over the fragility of the U.S.-China trade deal drew investors into safe-haven assets.
Analysts noted that the dollar serves as a key barometer of trade talk sentiment, while geopolitical instability prompted investors to buy the Swiss franc and yen.
In afternoon trading, the dollar was down more than 1% at 0.8114 Swiss francs, after dropping to 0.8104, the lowest since April 22. The dollar slid 0.7% to 143.59 yen. Earlier in the session, it fell to a one-week low.
The euro reached its highest since October 2021 against the dollar at $1.1632 and was last up 0.8% at $1.1576.
Some analysts said the euro also gained support from a hawkish European Central Bank, which hinted at a pause in its year-long easing cycle after inflation finally returned to its 2% target.
However, ECB policymaker Isabel Schnabel said on Thursday the strong euro exchange rate is being driven by safe-haven investors in a positive confidence shock in Europe, and not by interest rate differentials.
"The dollar has lost some of its safe-haven characteristics," said UBS' Serebriakov. "And I think the euro just benefits from that as being the second most important global reserve currency, the second most important trade invoicing currency, and really just the first alternative to the dollar."
In trade, Trump said he would be willing to extend a July 8 deadline for completing talks with other countries. But the U.S. will send out letters in coming weeks specifying trade terms to dozens of other countries which they could embrace or reject, he added.
This keeps the risk of a July 9 jump in U.S. import tariffs on the table, a negative for the dollar, some investors noted. The greenback and U.S. Treasuries dropped sharply after Trump announced a blitz of reciprocal tariffs - which he dubbed "Liberation Day" - in early April.
Against a basket of currencies, the dollar fell 0.5% to 97.95. It hit 97.786, its lowest since March 2022.
Currency
bid
prices at
12 June
07:36
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 97.925 98.455 -0.53% -9.74% 98.52 97.6
index 04
Euro/Doll 1.1576 1.1487 0.77% 11.81% $1.1632 $1.1
ar 486
Dollar/Ye 143.56 144.575 -0.72% -8.78% 144.22 143.
n 195
Euro/Yen 166.19 166.04 0.09% 1.82% 166.72 165.
5
Dollar/Sw 0.8115 0.8206 -1.11% -10.58% 0.8202 0.81
iss 04
Sterling/ 1.3596 1.3537 0.45% 8.72% $1.3623 $1.3
Dollar 525
Dollar/Ca 1.3605 1.3672 -0.48% -5.38% 1.3675 1.36
nadian
Aussie/Do 0.6526 0.6503 0.38% 5.49% $0.6534 $0.6
llar 478
Euro/Swis 0.9392 0.9419 -0.29% -0.01% 0.9428 0.93
s 92
Euro/Ster 0.8511 0.8477 0.4% 2.88% 0.8546 0.84
ling 75
NZ 0.6062 0.6027 0.61% 8.36% $0.6071 0.60
Dollar/Do 08
llar
Dollar/No 9.9398 10.0429 -1.03% -12.55% 10.0659 9.93
rway 59
Euro/Norw 11.506 11.5646 -0.51% -2.23% 11.589 11.5
ay 06
Dollar/Sw 9.4473 9.5509 -1.08% -14.25% 9.5607 9.38
eden 09
Euro/Swed 10.9348 10.9738 -0.36% -4.64% 10.9905 10.9
en 04
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Stefano Rebaudo in Milan; Editing by Jacqueline Wong, Toby Chopra and Mark Heinrich and Richard Chang)
The US dollar declined due to weaker-than-expected inflation data for May, suggesting that the Federal Reserve could cut interest rates sooner.
The euro soared to its highest level in almost four years against the dollar, reaching $1.1632.
Analysts are predicting that the Federal Reserve may deliver back-to-back interest rate cuts starting in September, following weaker inflation readings.
Geopolitical risks, particularly rising tensions in the Middle East and concerns over the U.S.-China trade deal, have prompted investors to seek safe-haven assets.
The recent inflation data led to increased bets on interest rate cuts by the Federal Reserve, affecting market sentiment and driving investors towards safer currencies.
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