The US dollar reached its strongest position in two months on Monday following an unexpectedly robust employment report that has traders increasing their expectations for Federal Reserve interest rate increases this year, while the Japanese yen continued its slide toward levels that could trigger government intervention.
Currency trading activity remained relatively quiet early in the session with Australian markets closed for a holiday, though the dollar maintained the significant gains it achieved after the employment data revealed nonfarm payrolls grew by 172,000 positions last month, significantly surpassing forecasts.
The euro dropped to a two-month low of $1.1507 against the dollar, while the British pound struggled at a three-week low of $1.33165.
Both the Australian and New Zealand dollars also declined to two-month lows, reaching $0.7016 and $0.5779 respectively.
“The U.S. payrolls report released… paints a picture of a U.S. labour market that is strengthening despite the ongoing energy price shock,” said Jonas Goltermann, chief markets economist at Capital Economics.
“That combination makes policy tightening by the Fed later this year increasingly probable… we now expect the FOMC to deliver two 25-basis-point rate hikes later this year, in response to the energy supply shock and the re-acceleration of the U.S. labour market.”
Before the employment report’s release, market participants had been steadily increasing their predictions for a Fed rate increase this year, as the worldwide energy crisis connected to the Iran war poses risks of rising inflation.
U.S. President Donald Trump said on Sunday he would tell Israeli Prime Minister Benjamin Netanyahu not to strike back after Iran fired a salvo of missiles at Israeli targets in retaliation for an attack on the outskirts of Beirut, news outlet Axios reported.
Financial markets are now factoring in more than a 70% likelihood that the Fed will implement a rate increase in December, a sharp rise from the 45% probability calculated a week earlier, based on the CME FedWatch tool.
The dollar’s strength has created additional challenges for the yen, which traded at 160.29 per dollar.
Japan’s currency has now given back all the progress it made following Tokyo’s 11.7 trillion yen ($73.01 billion) market intervention just over a month ago, when it dropped to its weakest level since July 2024 at 160.725.
“The yen remains under pressure due to the persistent interest rate disadvantage, with the Bank of Japan still slow to normalise policy despite hawkish shifts at other central banks,” said David Meier, an economist at Julius Baer.
“While the interventions have bought the authorities some time, the outlook hinges largely on monetary policy action.”
Sources told Reuters that the BOJ is expected to raise interest rates this month unless a sharp escalation in the Middle East conflict upends markets.
In digital currency markets, bitcoin gained more than 1% to $62,838.60, recovering after falling to its weakest point since October 2024 last week.
Ether climbed more than 3% to $1,680.87, also bouncing back from a 14-month low reached last week.
Booming AI stocks and a series of glittering upcoming new listings such as SpaceX have lured capital away from bitcoin, leaving the world’s largest cryptocurrency struggling since the start of the year.
