Dollar scales two-month peak as Fed hike bets ramp up
Rae Wee and Amanda Cooper
SINGAPORE/LONDON, June 8 (Reuters) – The dollar traded at a nearly two-month high on Monday, while the yen fell further into intervention territory after a big U.S. jobs report led investors to increase bets on the Federal Reserve raising interest rates this year.
Price movements in currencies have been fairly weak compared to broader financial markets, where a decline in technology shares has swept Asia and stocks in Europe have been destabilized.
The dollar held on to gains following Friday’s report that showed nonfarm payrolls increased by 172,000 jobs last month, well above forecasts. The euro was hovering around a nearly nine-week low at $1.1525, while the pound was trading near three-week lows at $1.3344.
“The US payrolls report… paints a picture of a strengthening US labor market despite the ongoing energy price shock,” said Jonas Goltermann, chief market economist at Capital Economics.
“This combination makes it increasingly likely that the Fed will tighten policy toward the end of this year… We now expect the FOMC to issue two 25 basis point rate hikes later this year in response to the energy supply shock and a reacceleration in the U.S. labor market.”
Before the jobs report was released, traders had become increasingly convinced that the Fed would raise interest rates this year as the global energy crisis linked to the Iran war threatens to increase inflation.
Weekly data from the US regulator shows that by June 4, the day before payrolls, investors had pushed bullish positions on the euro to a three-month low while bearish positions on the yen were now worth more than $10 billion, according to LSEG data.
The Federal Open Market Committee meets for the first time next week under new Chairman Kevin Warsh, and markets now see a roughly 50% chance of a rate hike by September, meaning caution could dampen the dollar’s run-up, analysts said.
“Looking ahead, spillovers in risk sentiment, a possible US-Iran deal, as well as the upcoming FOMC meeting, place speed limits on the dollar’s near-term movement,” Barclays strategists wrote. he said.
MORE MIDDLE EAST ATTACKS
Israel said it hit military targets in western and central Iran on Monday, despite US President Donald Trump telling Israeli Prime Minister Benjamin Netanyahu to refrain from further strikes. As a result, the price of oil rose nearly 5%, creating some unease for investors already grappling with a sharp selloff in high-flying tech stocks.
