Dollar Continues to Strengthen

The dollar index edged higher to start the week, trading around 101, but remained close to a three-week low after posting its largest weekly decline since April last week. The greenback came under pressure after the June US payrolls report showed job growth slowed sharply, prompting investors to scale back expectations for Fed rate hikes this year. Meanwhile, oil prices have retreated to pre-conflict levels, helping to ease concerns over renewed inflationary pressures. Markets are now pricing a 56% probability of a Fed rate hike as soon as September, down from around 64% before the jobs report was released. Investors will closely monitor the release of the FOMC minutes later this week for further clues on the Fed's policy outlook. On Monday, the dollar posted its strongest gains against the yen, which remains near a 40-year low, as the threat of official intervention continues to keep traders on edge.

The dollar index remained below 101 on Monday after posting weekly losses, as softer-than-expected US jobs data and lower oil prices led traders to scale back expectations for Federal Reserve interest rate hikes. Data released last week showed US nonfarm payrolls increased by just 57,000 in June, the smallest gain in four months and well below forecasts of 110,000, prompting markets to reduce bets on a September rate hike. Oil prices also edged lower as recovering energy flows through the Strait of Hormuz and the prospect of higher OPEC+ output fueled concerns about a potential supply glut. That has helped ease inflationary pressures that had previously bolstered expectations of further rate hikes. Investors now await the minutes of the Federal Reserve’s June policy meeting later this week for fresh clues on the outlook for interest rates.

The dollar index held below 101 on Friday after tumbling in the previous session, as weaker-than-expected US labor market data led traders to dial back expectations for Federal Reserve rate hikes this year. The US economy added just 57,000 jobs in June, the fewest in four months and well below forecasts of 110,000, while the unemployment rate stood at 4.2%. That followed a report on Wednesday showing private-sector job growth also fell short of expectations. Fed funds futures now imply roughly a 50% chance of a September rate hike, down from 67% before the latest employment report. Fed Chair Kevin Warsh also said this week that inflation expectations are moderating while reaffirming the central bank’s commitment to maintaining price stability. The dollar index is on track to end the week lower, snapping a two-week winning streak.