Key Takeaways

• Dollar at 2-month peak: The DXY edged up 0.1% to 100.17 — its highest since April 6 — after Friday’s 0.7% surge.
• Jobs data the catalyst: The U.S. added 172,000 jobs in May — well above forecasts — reinforcing bets the Fed could tighten further.
• December hike now priced in: Markets have materially increased bets on a Fed rate move by year-end.
• ING’s explanation: “Bearish flattening of the US yield curve as the market moves to price Fed tightening and a tech-led sell-off in risk assets are the main culprits.”
• Key events ahead: U.S. CPI for May due Wednesday; a likely SpaceX IPO on Friday.
• Israel strikes Iran: Tel Aviv targeted military sites in western and central Iran, plus a petrochemical facility near Mahshahr — even after Trump urged restraint.
• Iran fired first: Tehran launched missiles toward northern Israel Sunday in response to Israeli operations in Beirut’s southern suburbs.
• Trump’s intervention ignored: Israel retaliated despite the president reportedly telling it not to.
• Hormuz fears return: Ongoing tensions around the strait fuel energy inflation concerns and underpin the dollar’s safe-haven appeal.
• Yen at danger zone: USD/JPY traded flat at 160.26 — matching levels that triggered Japanese FX intervention in late April.

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The U.S. dollar traded higher on Monday after jumping to a two-month high in the previous session, as stronger-than-expected U.S. jobs data weighed on the outlook for U.S. interest rates, while escalating tensions in the Gulf kept risk appetite in check.

The U.S. Dollar Index edged up 0.1% to 100.17 — its highest since April 6. The index had jumped 0.7% on Friday.

Strong U.S. Jobs Data Spark Fed Hike Bets

Friday’s payrolls report showed the U.S. economy added 172,000 jobs in May — well above market expectations — reinforcing views that the Federal Reserve could keep monetary policy tighter for longer.

Markets have increased bets on a Fed rate hike later this year, with traders now assigning a higher probability to a move by December.

“The dollar is enjoying broad support. Bearish flattening of the US yield curve as the market moves to price Fed tightening and a tech-led sell-off in risk assets are the main culprits for the move,” ING analysts said in a note.

“We see these two factors continuing to dominate in a week that sees the release of US CPI for May on Wednesday and a likely SpaceX IPO on Friday,” they added.

Middle East Tensions Escalate Again

Investor sentiment remained cautious amid renewed hostilities in the Gulf region.

Israel said on Monday it had targeted military sites in western and central Iran, as well as a petrochemical facility near Mahshahr. Israel retaliated on Monday even after U.S. President Donald Trump reportedly told Israel to refrain from further attacks.

The move came after Iran fired several missiles toward northern Israel late Sunday, with Israeli air defenses intercepting the projectiles. Tehran said the attack was a response to Israeli operations in Beirut’s southern suburbs.

Tensions around the Strait of Hormuz continued to fuel concerns over global energy supplies and inflation risks. The geopolitical uncertainty helped underpin the dollar’s safe-haven appeal.

Yen Hits Intervention Danger Zone

Elsewhere, the Japanese yen’s USD/JPY pair traded largely flat at 160.26 yen — its highest since late April, when Japanese authorities intervened in the foreign exchange market.