The dollar traded around its highest in nearly two months on Monday after a blowout U.S. jobs report prompted traders to ramp up bets on a Federal Reserve rate rise this year, while the yen tilted further into the intervention zone. Price action in currencies was fairly subdued compared with broader financial markets, where a rout in technology stocks swept across Asia and unsettled shares in Europe. The Reuters Inside Track newsletter is your essential guide during the World Cup.
The dollar held to the gains made on the back of Friday's report that showed nonfarm payrolls increased by 172,000 jobs last month, which far exceeded estimates. The euro hovered around its lowest in around nine weeks at $1.1525, while the pound traded near three-week lows at $1.3344. "The U.S. payrolls report ... paints a picture of a U.S. labour market that is strengthening despite the ongoing energy price shock," said Jonas Goltermann, chief markets economist at Capital Economics. "That combination makes policy tightening by the Fed later this year increasingly probable ... we now expect the FOMC to deliver two 25 basis-point rate hikes later this year, in response to the energy supply shock and the re-acceleration of the U.S. labour market."
Prior to the release of the jobs report, traders were already growing more convinced of a Fed hike landing this year, as the global energy crisis tied to the Iran war threatens to stoke inflation. Weekly data from the U.S. regulator shows that in the week to June 4, the day before payrolls, investors cut their bullish positions in the euro to the lowest in three months, while adding to their bearish bets on the yen, positions now worth more than $10 billion, according to LSEG data. The Federal Open Market Committee meets next week for the first time under new Chair Kevin Warsh, and right now, markets see a roughly 50% chance of a hike by September, meaning caution could temper any excessive dollar bullishness, analysts said. "Looking ahead, spillovers to risk sentiment, a potential U.S.-Iran deal, but also the upcoming FOMC meeting pose speed limits to this dollar move in the near term," Barclays strategists said.
Israel said it struck military targets in western and central Iran on Monday, even after U.S. President Donald Trump reportedly told Israeli Prime Minister Benjamin Netanyahu to refrain from further attacks. As a result, the oil price jumped nearly 5% , which added a layer of nervousness for investors who were already grappling with a steep selloff in high-flying tech stocks. The dollar has drawn on its safe-haven credentials in the past couple of weeks, as well as the likely widening gap between U.S. rates and those elsewhere. This has hit the Japanese yen particularly hard.
The yen has erased the gains made in the wake of Tokyo's 11.7 trillion yen ($73.01 billion) intervention just over a month ago, when it slid to its lowest since July 2024 at 160.725. It was around 160.19 on Monday .
Sources told Reuters that the BOJ is expected to raise interest rates this month unless a sharp escalation in the Middle East conflict upends markets, as rising fuel costs from the energy shock compound price pressures in the economy. "I think that leaves us in limbo for the yen, given that the hike is pretty much priced in," said Sim Moh Siong, a strategist at OCBC. "In order for the yen to benefit further from rate-hike expectations, the market will be looking at whether the BOJ is going to telegraph a faster-than-expected pace of rate hikes.
