Dollar Index Hits 4-week Low

The dollar index edged lower below the 100 mark on Monday after climbing as high as 100.2 earlier in the session, as traders continued to assess the evolving situation in the Middle East. Reports indicated that Iran’s military had halted strikes against Israel but warned it would resume hostilities if Jerusalem continues operations in Lebanon. Meanwhile, President Trump said that Iran and Israel were seeking to reach a ceasefire agreement and that negotiations with Iran on a final deal were progressing. As a result, oil prices pared some of their earlier gains. However, concerns that a prolonged conflict with Iran could fuel inflationary pressures continued to weigh on sentiment, with the probability of a Fed rate hike as soon as October currently standing near 52%. Investors now await this week's US CPI and PPI reports for further clues on the inflation outlook. The dollar weakened across the board, with the largest declines recorded against the Australian dollar and the Japanese yen.

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.