The US Dollar Index (DXY) has rebounded above the 98.000 level, supported by a combination of stalled Middle East peace talks and a stronger-than-expected US Nonfarm Payrolls (NFP) report for April, according to MUFG's Lee Hardman [1]. The deadlock in negotiations between the US and Iran, with both sides rejecting each other's latest proposals, has dampened investor optimism for a swift resolution and the reopening of the Strait of Hormuz, fueling safe-haven demand for the US Dollar [1][4]. The risk of a prolonged disruption in the Strait of Hormuz is seen as a potential threat to the global economy and financial markets [1][4].
The US labor market data further bolstered the Dollar, with the Bureau of Labor Statistics reporting an NFP increase of 115K in April, surpassing the market consensus of 62K but slowing from March's 185K. The unemployment rate remained steady at 4.3%, matching expectations [4]. Rising US Treasury yields accompanied the Dollar's gains [4]. Despite the strong jobs data, OCBC's Christopher Wong notes that the DXY traded slightly softer last week, as markets focused more on geopolitical risks, oil prices, and Federal Reserve repricing, suggesting modest downside risks for the Dollar with key support at 97.50/60 [3].
In the Eurozone, the EUR/USD pair has held up due to a softer Dollar and strong Asian AI-related risk sentiment, but weak Eurozone activity data and high oil prices have capped gains. ING's Chris Turner highlights that expectations for a European Central Bank (ECB) rate hike of 25 basis points on June 11 are currently priced with an 82% probability, helping to prevent EUR/USD from dropping toward 1.15. However, unless there is a breakthrough in Middle East peace talks, the risk remains skewed to the downside, with limited scope for EUR/USD to break above 1.18 [2].
The Australian Dollar (AUD) remains subdued, trading around 0.7245, as risk aversion stemming from geopolitical tensions offsets positive China inflation data and a hawkish Reserve Bank of Australia (RBA). The RBA recently raised its policy rate to 4.35% for the third consecutive time this year and signaled that rates could reach 4.7% by year-end, with no cuts expected before 2028 [4]. China's CPI rose 1.2% year-on-year in April, above expectations, providing some support for the AUD [4].
The Japanese Yen (JPY) has weakened, with policymakers intervening to support the currency. HSBC strategists emphasize that the sustainability of Yen gains depends on Bank of Japan (BoJ) policy, global yields, and fiscal developments. If the BoJ does not act in June, markets may view it as behind the curve, and upcoming fiscal recommendations could add further pressure [5]. The recent surge in oil prices, with Brent rising to $103.00 and WTI to $94.60, has exacerbated challenges for Japan, a net oil importer, straining fiscal stability and weighing on the Yen [6]. The GBP/JPY pair is pushing toward the 214.10-214.25 resistance area, supported by a weak Yen and positive technical momentum, while the Pound shrugs off domestic political concerns [6].
Currency performance tables show the US Dollar was strongest against the Japanese Yen, gaining 0.10% on the day, while the Yen was weakest against the US Dollar and other majors [4][6].
CONCLUSION
The US Dollar is benefiting from geopolitical tensions and robust labor data, while the Japanese Yen faces headwinds from rising oil prices and policy uncertainty. The Euro and Australian Dollar are constrained by weak domestic data and risk aversion, despite some supportive factors. Overall, market sentiment remains cautious, with safe-haven flows favoring the Dollar amid ongoing global uncertainties.