The U.S. dollar remained firm at the start of the week and is on track for its strongest monthly gain in nearly a year. Demand for the greenback continues to be supported by tensions in the Gulf, rising oil prices, and elevated U.S. Treasury yields.

The Dollar Index, which measures the U.S. dollar against a basket of major currencies including the euro and Japanese yen, held steady around 101.34, near the 13-month high reached last week. For June, the index is on pace to gain around 2.5%, marking its strongest monthly advance since July last year.

Gulf Tensions Support Safe-Haven Demand for the Dollar

Over the weekend, the United States and Iran exchanged fresh warnings before both sides agreed to stop retaliatory attacks and meet in Qatar on Tuesday.

Although a ceasefire has been announced, investors remain cautious about how durable the agreement will be. Oil prices rose at the start of the week as renewed strikes slowed energy shipping through the Strait of Hormuz.

Against this backdrop of geopolitical uncertainty, the U.S. dollar continues to benefit from its safe-haven status.

Higher Yields and a Hawkish Fed Continue to Support the Greenback

Beyond geopolitical risks, the dollar’s strength is also being driven by expectations that U.S. interest rates will stay higher for longer.

After the June FOMC meeting, the market narrative shifted toward a “higher-for-longer” interest rate environment, especially after Fed Chair Kevin Warsh’s hawkish debut. This has reduced expectations for rate cuts this year and pushed U.S. Treasury yields sharply higher.

When U.S. yields remain elevated, the dollar typically becomes more attractive compared with other major currencies.

Major Currencies Remain Under Pressure

The euro was little changed around $1.1386, after hitting a 13-month low against the dollar last week. For the month, the euro is down around 2.4%.

The British pound slipped 0.1% to $1.3198 and has fallen about 1.9% so far this month.

Risk-sensitive currencies have also come under clear pressure. The Australian dollar traded around $0.6889, heading for a monthly decline of roughly 4.1%. The New Zealand dollar hovered near a seven-month low at $0.5646, down about 5.8% for the month.

Meanwhile, the Japanese yen remained weak around 161.75 per dollar, continuing to trade near a 40-year low.

U.S. Jobs Data Will Be the Next Key Focus

Markets are now waiting for this week’s U.S. nonfarm payrolls report and unemployment rate. These data points will be important for assessing the strength of the labor market and the Federal Reserve’s next policy direction.

If labor market data remains strong, expectations that U.S. interest rates will stay high, or even rise further, could be reinforced. This would continue to support the dollar.

On the other hand, if the labor market shows clear signs of weakness, the dollar’s upward momentum may slow as investors reassess the Fed’s policy outlook.

Conclusion

The U.S. dollar is currently being supported by three key factors: geopolitical tensions in the Gulf, elevated U.S. Treasury yields, and expectations that the Fed will maintain a hawkish stance.

In the short term, the dollar’s upward trend could remain intact if U.S. labor data continues to show strength and the Fed avoids sending a more dovish signal.

However, risks remain. A clear deterioration in U.S. economic data or a sharp easing of Gulf tensions could reduce safe-haven demand and weaken expectations for higher U.S. rates.

Source: Reuters