The dollar index fell to its weakest level in two weeks Wednesday, hurt by increasing doubts over the Trump administration's tax-cut legislation and ongoing political gridlock in Congress. Lingering impacts from Moody's recent downgrade of U.S. debt heightened market anxiety, causing weak demand for 20-year Treasury bonds, whose yields surged to their highest since November 2023.

Safe-haven demand surges

Geopolitical tensions intensified investor fears, notably due to escalating U.S.-Iran disagreements over Tehran’s nuclear activities. Investors sought refuge in gold and bitcoin, pushing the latter to record highs. China, meanwhile, called for increased global cooperation amid growing U.S.-EU trade frictions and a deepening technology conflict centered around semiconductor exports.

EUR/USD climbs on dollar weakness

EUR/USD rallied to a ten-session high as traders increased exposure to European assets. ECB policymaker Mario Centeno hinted that interest rates could dip below neutral levels, adding further bullish momentum. Technical indicators remained supportive, signaling potential for additional euro gains.

Sterling boosted by UK inflation spike

GBP/USD surged to a 39-month peak of 1.3469 following surprisingly strong UK inflation data (April CPI at 3.5%), increasing pressure on the Bank of England to rethink its policy stance. Markets are now closely watching resistance at the critical 1.35 level ahead of key UK PMI data and BoE commentary on Thursday.

USD/JPY falls amid risk aversion

USD/JPY declined to a fresh two-week low, driven by deteriorating global risk appetite and fading optimism around earlier U.S.-China tariff deals. Increased buying of short-dated yen call options near 140 intensified downward pressure, especially with high-level Japan-U.S. talks at the G7 summit looming.

Yields rise, equities drop

Treasury yields rose sharply at the long end, steepening the 2s-10s yield curve spread by seven basis points to +51.5bp, reflecting uncertainty over inflation and growth outlooks. Equities retreated, with the S&P 500 falling 1.43%, while gold prices rose nearly 0.8% on safe-haven demand.

Market snapshot:

• EUR/USD +0.48%, GBP/USD +0.25%, AUD/USD +0.31%
• USD/JPY -0.59%; Gold +0.8%; S&P 500 -1.43%