Dollar hits two-month peak as Fed hike bets ramp up

SINGAPORE: The dollar was perched near a two-month high on Monday after a blowout U.S. jobs report sent traders ramping up bets on a Federal Reserve rate hike this year, while the yen teetered further into the intervention zone.

Moves in currencies were largely muted compared to the broader market, where a rout in technology stocks swept across Asia. The dollar held to its strong gains made in the wake of the report that showed nonfarm payrolls increased by 172,000 jobs last month, far exceeding estimates.

Against the dollar, the euro fell to a two-month low of $1.1507, while sterling struggled at a three-week trough of $1.33165.

The Australian and New Zealand dollars similarly slid to their lowest in two months at $0.7016 and $0.5779, respectively.

“The U.S. payrolls report released … 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.

Pound heads for third weekly gain against dollar

“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 had been gradually adding to bets on a Fed hike this year, as the global energy crisis tied to the Iran war threatens to stoke inflation.

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.

Markets are now pricing in a more than 70% chance that the Fed will raise rates in December, sharply up from a 45% probability a week ago, according to the CME FedWatch tool.

Yen hits key 160 level for third session, dollar buoyed by Gulf woes

Yen on tenterhooks

The strength in the dollar has in turn brought more pain for the yen, which fetched 160.34 per dollar.

The Japanese currency has now erased its 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.

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.” In cryptocurrencies, bitcoin was up more than 1% to $63,093.86, rebounding after sliding to its lowest since October 2024 last week.

Ether rose more than 3% to $1,679.40, having also slid to a 14-month low last week.

Booming AI stocks and a series of glittering upcoming new listings such as SpaceX have lured capital away from bitcoin, leaving the world’s largest cryptocurrency struggling since the start of the year.