Dollar poised for best month in nearly a year; eyes on jobs data, Gulf tension

HONG KONG: The US dollar was on the defensive on Monday but remained on track for its biggest monthly gain in nearly a year, due to tension in the Gulf and ahead of jobs data that could shape the Federal Reserve’s rate path.

The US and Iran traded fresh barbs over the weekend before they agreed to stop tit-for-tat attacks and meet in Qatar on Tuesday, leaving investors nervous about a fragile ceasefire.

Oil prices rose on Monday following strikes that again slowed energy shipping in the Strait of Hormuz, supporting safe-haven demand for the greenback.

The euro was flat at $1.1387 after hitting a 13-month low against the dollar last week, and was on track for a 2.3% monthly decline.

Sterling traded 0.1% lower at $1.3198 and was down 2% for the month.

The risk-sensitive Australian dollar fetched $0.6885, down 0.1% in early trade and heading for a 4.1% monthly decline.

The New Zealand dollar was little changed at $0.5635, down 5.9% for the month.

The Japanese yen last traded at 161.75, continuing to languish near a 40-year low.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was a shade higher at 101.36.

It is now on track for a 2.5% gain for June, which marks the biggest monthly advance since July last year.

The conflict with Iran has continued to stoke inflation pressures, while a surprisingly hawkish debut from Kevin Warsh as Federal Reserve chair earlier in the month has reversed market expectations for US rate cuts this year.

Meanwhile, a tech-led global equity selloff is also driving flows into the dollar as investors seek shelter.

Investors are now watching US non-farm payroll and unemployment rates due this week, which could offer fresh clues on the strength of the labour market and the outlook for Fed policy.

“We expect the USD to grind higher in coming weeks because of the ‘US exceptionalism’ narrative,” Joseph Capurso, head of foreign exchange at Commonwealth Bank of Australia, said in a note.

A strong and improving labour market is a recipe for higher US interest rates and the dollar, he said.

The European Central Bank’s annual forum this week is also under close watch as investors continue to monitor evolving central bank policies amid lower oil prices and stock market volatility.

ECB President Christine Lagarde opens the forum on Monday, followed by a key policy panel on Wednesday featuring Fed Chair Warsh, with markets looking for a clearer read on the new Fed chief.