Dollar primed for strongest month in nearly a year; jobs data, Gulf tensions in focus

The U.S. dollar was on the defensive on Monday, but still set for its greatest monthly gain in almost a year as tension in the Gulf and ahead of jobs data that might affect the Federal Reserve’s rate path.

The U.S. and Iran hurled additional insults over the weekend before agreeing to suspend tit-for-tat attacks and meet in Qatar on Tuesday, leaving investors anxious about a fragile ceasefire.

Oil prices increased on Monday as strikes again disrupted petroleum shipping in the Strait of Hormuz, underpinning safe-haven demand for the dollar.

The euro was unchanged at $1.1387 after hitting a 13-month low versus the dollar last week and was set for a 2.3% monthly drop. Sterling fell 0.1% to $1.3198 and was down 2% on the month.

The risk-sensitive Aussie was at $0.6885, down 0.1% in early trade and on track for a 4.1% fall this month. The New Zealand dollar was steady at $0.5635, down 5.9% on the month.

The Japanese yen was last quoted at 161.75, staying at a 40-year low.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was a little higher at 101.36.
It is currently on course for a 2.5% gain in June, the highest monthly gain since July last year.

The spat with Iran has kept inflation pressures at bay, while a surprisingly hawkish debut by Federal Reserve Chair Kevin Warsh earlier this month has overturned market expectations for U.S. rate reduction this year.

Flows into the dollar are also being driven by a tech-led global market selloff as investors seek refuge.

Investors will be looking the US non-farm payroll (USNFAR=ECI) and unemployment rates (USUNR=ECI) expected this week for fresh signals on the strength of the labour market and the outlook for Fed policy.We see the USD grinding higher in the coming weeks on the story of ‘US exceptionalism,’” said Joseph Capurso, head of foreign exchange at Commonwealth Bank of Australia, in a note.

“Labour markets are strong and getting stronger, so it’s a recipe for higher interest rates and a stronger dollar in the U.S.,” he added.

Investors are also monitoring closely the European Central Bank’s annual forum this week as they keep tabs on developing ⁠central bank ​policies amid reduced oil prices and stock market volatility.

ECB President ​Christine Lagarde kicks off the forum Monday before a major policy panel Wednesday with Fed Chair Warsh, with markets seeking for ​a clearer read on the next Fed leader.