June 12 (Reuters) - The dollar hit a 2025 low on Thursday but Wall Street stocks held near record highs as traders weighed low inflation readings, rising Middle East tensions, and the fragility of a U.S.-China trade truce.
U.S. consumer and producer inflation reports showed overall price pressures remained contained in May, largely due to declines in the cost of gasoline, cars and housing, or services like air transport. But most economists expect inflation to pick up as the impact of U.S. tariffs begins to bite.
The dollar, which has lost around 10% in value against a basket of currencies this year, fell to its lowest since April 2022.
Global stocks continued an almost-unbroken rally since early April, leaving the MSCI All-Country World index (.MIWD00000PUS), up 0.25%, just below Wednesday's all-time high.
On Wall Street, the Dow Jones Industrial Average (.DJI), added 0.16%, while the S&P 500 (.SPX), and the Nasdaq Composite (.IXIC), both gained about 0.3%.
Shares of planemaker Boeing BA.N, lost about 5% after an Air India aircraft carrying more than 200 people crashed in India's western city of Ahmedabad, and aviation tracking site Flightradar24 said the plane was a Boeing 787-8 Dreamliner.
Oracle (ORCL.N), shares rose nearly 14% after the cloud service provider its annual revenue growth forecast.
European equities logged their fourth consecutive decline on Thursday as trade optimism waned, with the STOXX 600 (.STOXX), down 0.3%. Stocks in China and Hong Kong also fell, led by declines in the tech sector.
The U.S. administration said on Wednesday U.S. personnel were being moved out of the Middle East due to heightened regional security risks, which briefly drove oil prices up by 4% before they receded.
"(A flare-up in tensions) is a significant tail risk, but I don't think it is anybody's baseline forecast. So it's something to watch if there is a real escalation there, then markets will take fright and that would have ramifications for the oil price," Daiwa Capital economist Chris Scicluna said.
Iran said it will not abandon its right to uranium enrichment, a senior Iranian official told Reuters on Thursday, adding that a "friendly" regional country had alerted Tehran over a potential military strike by Israel.
Classic safe-haven assets got a lift. The Swiss franc and Japanese yen strengthened, pushing the dollar down 1% against the franc and down 0.67% against the yen, while gold rose about 0.9% to $3,382 an ounce.
FILE PHOTO: Illustration shows U.S. Dollar banknotes
U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo Purchase Licensing Rights, opens new tab
Relief stemming from a positive conclusion to U.S.-China trade talks earlier this week, which President Donald Trump said was a "great deal with China," evaporated by Thursday.
RED, WHITE AND BLUE LETTERS
Adding yet another dose of market uncertainty, Trump said the U.S. would send out letters in one to two weeks outlining the terms of trade deals to dozens of other countries, which they could embrace or reject.
"Markets may have no choice but to respond to Trump's tariff threat — even if it's just posturing to bring others to the table. The gap between 'risk-on' positioning and real-world risks has stretched too far," said Charu Chanana, chief investment strategist at Saxo Bank.
Trump's erratic tariff policies have roiled global markets this year, prompting hordes of investors to exit U.S. assets, especially the dollar, as they worried about rising prices and slowing economic growth.
The euro rose 0.74% to $1.15, touching its highest level since October 2021.
U.S. Treasuries also rallied in price, pushing yields down 5.1 basis points to below 4.363%, while two-year yields , which are more sensitive to inflation and interest-rate expectations, eased 2.7 bps to 3.918%.
Wednesday's consumer inflation index kept alive the prospect of the Federal Reserve cutting rates by a quarter point, but only in September, as policymakers assess how tariffs work their way through the real economy.
On Thursday, the Labor Department reported that U.S. producer prices increased less than expected in May, restrained by lower costs for services including flights.
Chris Zaccarelli, chief investment officer for Northlight Asset Management in Charlotte, said the new inflation data this week gives the Fed cover to wait for more information on how the new tariffs and trade talks might impact price stability.
"This gives the Fed room to sit on their hands," he wrote in an email.
Oil, which has fallen by 20% in the last year , eased 0.1% to $69.69 a barrel, but was still pinned near two-month highs, adding another moving part to the outlook for interest rates.
Reporting by Lawrence Delevingne, Amanda Cooper, Ankur Banerjee and Johann M Cherian; Editing by Chizu Nomiyama, Jan Harvey, Nick Zieminski and Richard Chang
