The US dollar traded slightly lower on Monday but remained on course for its strongest monthly gain in nearly a year.
Ongoing tensions in the Gulf and expectations surrounding upcoming US employment data continued to shape demand for the greenback.
US-Iran Tensions Support Safe-Haven Demand
The United States and Iran exchanged fresh warnings over the weekend before agreeing to suspend retaliatory attacks.
Officials from both countries are expected to meet in Qatar on Tuesday.
The development offered some hope that the conflict could ease. However, investors remained cautious because the ceasefire appeared fragile.
Renewed military strikes also disrupted energy shipments through the Strait of Hormuz, pushing oil prices higher on Monday.
The continuing geopolitical uncertainty supported demand for the US dollar as a safe-haven currency.
US Dollar Heads for Strong June Gain
The US Dollar Index, which tracks the greenback against a basket of major currencies, traded slightly higher at around 101.36.
The index was on track to gain approximately 2.5% in June.
That would represent the dollar’s largest monthly advance since July of the previous year.
Safe-haven demand, changing Federal Reserve expectations and resilient US economic data have all contributed to the currency’s recent strength.
Euro Near 13-Month Low Against Dollar
The euro was broadly unchanged at approximately $1.1387.
The single currency had fallen to a 13-month low against the dollar during the previous week and was heading for a monthly decline of around 2.3%.
Investors are assessing the outlook for European monetary policy as lower oil prices and volatile stock markets create a more uncertain economic environment.
Pound, Australian Dollar and Kiwi Weaken
The British pound declined by around 0.1% to $1.3198.
Sterling was on course to lose approximately 2% during the month.
The Australian dollar traded near $0.6885, down 0.1% during early trading. It was heading for a monthly fall of around 4.1%.
Meanwhile, the New Zealand dollar was little changed near $0.5635 but remained on track for a steep monthly decline of approximately 5.9%.
Both currencies have faced pressure from the stronger US dollar and concerns about the global economic outlook.
Japanese Yen Remains Near Historic Low
The Japanese yen traded near 161.75 against the US dollar.
The currency remained close to its weakest level in around 40 years.
Wide differences between US and Japanese interest rates have continued to weigh on the yen.
Markets will closely monitor Japanese economic data and any signals from the Bank of Japan for clues about future monetary policy.
Federal Reserve Rate Expectations Shift
The conflict with Iran has contributed to concerns that higher energy prices could increase inflationary pressure.
At the same time, hawkish signals from Federal Reserve Chair Kevin Warsh have reduced expectations for US interest-rate cuts this year.
Higher interest rates generally support the dollar because they can increase the returns available on US financial assets.
A global stock market selloff led by technology shares has also encouraged investors to move into the greenback in search of safety.
US Jobs Data Could Guide Fed Policy
Investors are now preparing for the latest US nonfarm payrolls and unemployment figures.
The reports could provide important evidence about the strength of the labour market and the Federal Reserve’s next policy steps.
A stronger-than-expected jobs report could reinforce expectations that US interest rates will remain high or rise further.
In contrast, weaker employment growth could revive expectations for monetary easing and place pressure on the dollar.
US Exceptionalism Could Lift the Dollar
Joseph Capurso, head of foreign exchange at Commonwealth Bank of Australia, said he expects the US dollar to move gradually higher in the coming weeks.
He cited the continuing “US exceptionalism” narrative, which reflects the relative strength of the American economy compared with other major regions.
According to Capurso, a strong and improving labour market would support higher US interest rates and further gains for the dollar.
ECB Forum Comes Into Focus
The European Central Bank’s annual policy forum will also attract attention this week.
ECB President Christine Lagarde is due to open the event on Monday.
A major policy panel is scheduled for Wednesday and will feature Federal Reserve Chair Kevin Warsh.
Investors will be looking for clearer guidance on the new Fed chair’s policy priorities and how major central banks may respond to inflation, lower oil prices and financial market volatility.
