US dollar eases slightly after Iran says attacks on Israel have ended

[LONDON] The US dollar retreated on Monday (Jun 8) from its highest level in nearly two months, after Iran said its attacks on Israel had ended.

Teheran’s comments lured investors into other currencies that had been dented after strong US jobs data on Friday prompted traders to ramp up bets on a Federal Reserve rate rise this year.

Iran’s military announced on Monday that its first wave of attacks on Israel since a ceasefire in April was now over, although it threatened to resume the strikes if Israel continued attacks on Lebanon.

The dollar held most of the gains made on the back of Friday’s non-farm payrolls report, which showed the US added 172,000 jobs last ​month, far exceeding estimates.

The euro was a touch stronger on the day at US$1.1539, but still hovered around its lowest in around nine weeks, while the pound edged above three-week lows to US$1.3362.

“The US payrolls report … paints a picture of a US 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 (Federal Open Market Committee) to deliver two 25 basis-point rate hikes later this year, in response to the energy supply shock and the re-acceleration of the US 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 US 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 US$10 billion, according to LSEG data.

The FOMC meets next week for the first time under new chair Kevin Warsh, and right now, markets see a roughly 50 per cent chance of a hike by September, meaning caution could temper any excessive dollar bullishness, analysts said.

“Looking ahead, spillovers to risk sentiment, a potential US-Iran deal, but also the upcoming FOMC meeting pose speed limits to this dollar move in the near term,” Barclays strategists said.

Safe-haven dollar

The dollar has drawn on its safe-haven credentials in the past couple of weeks, as well as the likely widening gap between US 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 (S$94 billion) intervention just over a month ago, when it slid to its lowest since July 2024 at 160.725. It was trading just below 160 on Monday.

Sources told Reuters that the Bank of Japan (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.” REUTERS