The U.S. dollar was on track for a weekly gain against several major currencies on Friday, supported by renewed safe-haven demand as uncertainty surrounding a potential Iran peace agreement continued to weigh on markets.
Higher U.S. Treasury yields also helped the greenback. A Financial Times report, citing people familiar with the matter, suggested Federal Reserve Chair Kevin Warsh could consider a September interest rate hike if upcoming economic data justifies further tightening.
US Jobs Report Could Shape Fed Expectations
Investors are now focused on the latest U.S. nonfarm payrolls report, which is due later on Friday. The data could provide further insight into the Federal Reserve’s next interest rate decision.
Economists surveyed by Reuters expect the U.S. economy to have added around 80,000 jobs last month, compared with a gain of 57,000 in June. Meanwhile, the unemployment rate is forecast to remain unchanged at 4.2%.
The Federal Reserve kept interest rates unchanged at its most recent meeting. However, Warsh has continued to emphasize the need to bring inflation under control.
Some analysts believe the Fed could tighten policy as early as September. Others remain more cautious. Kristina Clifton, an economist at Commonwealth Bank of Australia, said her team expects the central bank to wait until December before beginning a modest tightening cycle.
Dollar Recovers Against the Yen
The dollar was broadly steady during Asian trading on Friday, changing hands near 158.365 yen after gaining around 0.4% in the previous session.
USD/JPY was heading for a weekly advance of roughly 0.6%, recovering from sharp volatility triggered by joint intervention from Japan and the United States.
The intervention pushed the pair down from levels above 163, close to a four-decade high, to a 13-week low near 155.20 earlier in the week.
Euro and Pound Remain Under Pressure
Against the euro, the dollar strengthened slightly, with EUR/USD trading around $1.1521 after the greenback gained approximately 0.3% in the previous session.
The dollar was little changed against the British pound, with GBP/USD trading near $1.3454.
Meanwhile, the U.S. Dollar Index, which tracks the greenback against six major currencies including the euro, yen and pound, edged higher to around 99.954.
The index was up slightly more than 0.1% for the week after falling about 1.6% during the previous week.
Iran Talks and Strait of Hormuz Remain in Focus
Geopolitical tensions in the Gulf continued to support demand for the dollar.
Reuters reported that a proposed agreement between Iran and Oman aimed at ending the U.S.-Iran conflict could potentially give Tehran greater control over inbound traffic through the Strait of Hormuz.
The United States did not immediately comment on the proposal.
President Donald Trump has previously said that an agreement to reopen the strait could be close. However, U.S. officials have repeatedly indicated that Washington would oppose any arrangement that gives Iran control over access to the strategically important energy route.
The Strait of Hormuz remains one of the world’s most important shipping corridors for global oil and energy supplies.
Oil Prices Rise as Geopolitical Risks Increase
Oil prices climbed as traders assessed the possibility that an agreement between the U.S. and Iran could take longer than previously expected.
Brent crude rose $1.31 on Friday to around $83.80 per barrel after gaining more than $3 during the previous session.
Higher energy prices also increased concerns about inflation, putting additional pressure on U.S. Treasuries and pushing yields higher.
Clifton said the dollar benefited from the rise in oil prices after reports suggested that a U.S.-Iran agreement to fully reopen the Strait of Hormuz may be further away than markets had hoped.
Rising oil prices can increase inflationary pressures, potentially giving the Federal Reserve another reason to keep monetary policy restrictive.
Australian and New Zealand Dollars Weaken
Risk-sensitive currencies also came under modest selling pressure.
The Australian dollar slipped around 0.1% to approximately $0.7028, while the New Zealand dollar declined by a similar amount to around $0.5864.
Overall, the dollar remained supported by a combination of geopolitical uncertainty, higher Treasury yields and expectations surrounding U.S. monetary policy.
Traders will now closely watch the U.S. employment report for signs that could influence expectations for the Federal Reserve’s next move.
