By Karen Brettell and Amanda Cooper
NEW YORK, June 29 (Reuters) – The dollar dropped on Monday but remained near a 13-month high, supported by optimism over U.S. economic growth, the prospect of Federal Reserve interest rate hikes and a continuing AI-driven boom in U.S. equity markets that has been drawing in capital at a rapid pace.
The Japanese yen also weakened to its lowest levels against the U.S. currency since 1986.
A more hawkish turn at the Fed’s June meeting under new Fed Chair Kevin Warsh has led traders to increase bets on rate hikes this year, as policymakers battle to bring down inflation that is running well above their 2% annual target. Fed funds futures traders are pricing in a 64% chance of a rate hike by September.
On the economic front, this week’s main U.S. focus will be Thursday’s jobs report for June. Three consecutive months of stronger-than-expected payroll gains have supported the Fed’s hawkish shift. A turn in the labor market, however, could prompt a more dovish rethink of the monetary path.
“The labor market appears to have accelerated,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The concerns that the doves had pointed to about labor markets slowing down seem to have passed.”
The data is expected to show that employers added 110,000 jobs last month, while the unemployment rate held steady at 4.3%, according to the median estimate of economists polled by Reuters.
Meanwhile, the U.S. Supreme Court refused on Monday to let Donald Trump fire Fed Governor Lisa Cook. Trump responded that his administration would take action immediately to ensure Cook will not be making decisions concerning the welfare of the U.S.
Traders are also focused on progress to end the U.S.-Israeli war with Iran.
Iranian and U.S. technical teams working on the implementation of an interim peace deal are expected to meet in Doha in the coming days, a source told Reuters on Monday, after tit-for-tat weekend strikes threatened to derail the fragile accord.
The dollar index, which tracks the performance of the U.S. currency against six others, dipped 0.28% to 101.08. The index is up 2.17% this month.
“That is quite significant because, since April of last year, there’s been so much discussion about the structural decline in the value of the dollar,” Rabobank chief FX strategist Jane Foley said. “But I think, even if you vehemently believe that, you’ve got to admit that there is space for a cyclical uptrend.”
Weekly figures from the U.S. market regulator showed investors held their largest bullish position in the dollar relative to other major currencies since 2019, worth some $36.4 billion, according to LSEG data.
The euro gained 0.39% to $1.1427 after reaching a 13-month low against the dollar last week. It has lost 2% this month.
The European Central Bank’s annual forum starts on Monday, opened by President Christine Lagarde and followed by a key policy panel on Wednesday that features Warsh, whose comments will come under close scrutiny from investors seeking more insight into the new Fed chief’s thinking on the outlook for rates.
The yen touched 161.97, its weakest level since 1986.
“The Bank of Japan’s long-awaited 25bp rate hike to 1.00% has done little to offset the still-wide interest rate differential with the United States, especially after the Federal Reserve maintained a hawkish stance and signaled rates are likely to remain elevated for longer,” analysts at LMAX Group said in a report.
Sterling strengthened 0.42% to $1.3256, having touched its lowest in seven months last week.
Andy Burnham, Britain’s prime minister-in-waiting, vowed on Monday to deliver radical change to the nation’s politics by handing more power to its regions and by encouraging collaboration over argument in a 10-year mission to spur “good” growth.
Investors are keen to see his choice for finance minister, which could prove crucial to the outlook for both the pound and the gilt market. Burnham said any economic plans would be “backed by discipline” and abide by current fiscal rules.
(Reporting by Karen Brettell and Amanda Cooper; Additional reporting by Jiaxing Li in Hong Kong; Editing by William Maclean, Susan Fenton and Edmund Klamann)