Forex Today: US Dollar retreats from two-month high as Middle East tensions ease

Here is what you need to know on Tuesday, June 9:

The US Dollar (USD) retreats from a two-month high to around 99.85 in early European trading on Tuesday as Middle East hostilities ebbed. Traders await the release of the US Consumer Price Index (CPI) inflation report on Wednesday and the Producer Price Index (PPI) data on Thursday for more clues on the Fed's interest rate path.

Traders are now pricing in a 43.2% chance of a 25 basis points (bps) rate hike in December, up from just about 14% a month ago, according to the CME FedWatch tool.  

US President Donald Trump said on Tuesday that he might have a proposal for the Iran agreement within days, per Reuters. Early Monday, Israeli Prime Minister Benjamin Netanyahu said that the war against Iran and its Lebanon-based proxy Hezbollah “has not yet ended,” though he insisted both are weaker than ever. 

Meanwhile, Iran had announced an end to its military operations against Israel. However, its central military command warned that if Israel continued to attack, including in southern Lebanon, “much harsher and more crushing actions than before will be on the way." 

Data released by the General Administration of Customs on Tuesday showed that China's Trade Surplus surged to $105.43 billion in May, widening from $84.82 billion recorded in April. Additionally, Exports rose by 19.4% YoY in May, compared to 14.1% in April, better than the 15.0% expected. Imports climbed 27.4% YoY in May, versus 25.3% prior, above the market consensus of 25.0%. 

Germany’s Industrial Production grew for the first time since the war broke out in Iran, with the figure rising 0.4% MoM in April, Destatis reported on Tuesday. This reading followed a decline of 0.1% in March and was in line with the market expectations. Annually, German Industrial Production came in at -0.5% in the same period, compared to March’s revised 3.4% decrease.

EUR/USD gathers strength to near 1.1550 in the European morning. The European Central Bank (ECB) is set to raise its key interest rate for the first time in almost three years at the upcoming June policy meeting on Thursday. 

GBP/USD gains momentum above 1.3350, rebounding from a three-week low. 

USD/JPY holds steady around 160.15 in the European morning on Tuesday. Markets are on high for foreign exchange intervention from Japanese authorities. Japan’s Finance Minister Satsuki Katayama on Tuesday emphasized that the stance is unchanged and authorities are prepared for decisive measures.

Gold posts modest gains near $4,340 on Tuesday. However, the yellow metal remains near its lowest since March 24 amid uncertainty in the Middle East and rising bets of a US interest rate hike.