Dollar Falls on Fed Independence Concerns

The dollar index hovered around 100 on Monday after climbing more than 1% last week, supported by robust US labor market data that reinforced expectations of a Federal Reserve interest rate increase later this year. Data released on Friday showed the US economy added 172,000 jobs in May, comfortably exceeding forecasts of 85,000, while the unemployment rate remained steady at 4.3%. Following the report, markets raised the probability of a Fed rate hike in December to nearly 70%, up from around 50% beforehand. Despite this, the central bank is still widely expected to leave interest rates unchanged at its June 16-17 policy meeting under the leadership of new Chairman Kevin Warsh. Expectations for a more hawkish Fed were also strengthened by renewed tensions in the Middle East, which drove oil prices higher and fueled inflation concerns.

The dollar index edged up to around 99.5 on Friday and remained on track for a weekly gain as a resilient labor market reinforced expectations that the Federal Reserve may need to keep policy tight or even consider further rate increases. The latest data showed the US economy added 172,000 jobs in May, well above expectations of 85,000, and the unemployment rate held at 4.3%. Also, persistent uncertainty in the Middle East continued to support demand for safe-haven assets. President Donald Trump said peace negotiations were nearing their final stage and appeared reluctant to escalate tensions with Iran despite recent military confrontations. However, Iranian Foreign Minister Abbas Araghchi stated that talks had produced no meaningful progress, while Iran-backed Hezbollah rejected a US-mediated ceasefire proposal between Israel and Lebanon.

The dollar index steadied around 99.4 on Friday and remained on track for a weekly advance as ongoing uncertainty in the Middle East continued to support safe-haven demand for the currency. President Donald Trump said peace negotiations were approaching their final stage and is reportedly reluctant to return to full-scale conflict with Iran despite recent hostilities. However, Iranian Foreign Minister Abbas Araghchi said no meaningful progress had been achieved in the talks, while Iran-backed Hezbollah rejected a US-mediated ceasefire proposal between Israel and Lebanon. In the US, investors turned their attention to the May employment report for further clues on labor market strength and the direction of Federal Reserve policy. Recent labor market data pointed to continued resilience in the economy, reinforcing expectations that the Fed could raise interest rates before year-end as officials contend with an energy-driven inflation shock tied to the Middle East conflict.