The dollar was stable on Monday, holding near two-month highs after last week’s gains on a significantly stronger-than-expected US labour market report.
The latter reinforced the view that the job market remains resilient. Nonfarm payrolls increased by 172,000 in May, exceeding expectations.
The data raised expectations that the Federal Reserve could move to tighten monetary policy in the near future amid current inflation risks.
As a result, Treasury yields rose across the curve. The higher-for-longer narrative continues to provide solid support for both yields and the dollar.
At the same time, increasing geopolitical tensions in the Middle East are also contributing to the currency’s strength. Ongoing incidents in the region could continue to fuel demand for the dollar as a safe-haven asset.
Looking ahead, investors will turn their attention to inflation data due on Wednesday, which could become a key catalyst for both Treasury yields and the dollar this week. Before then, ADP employment figures may also generate volatility as they offer an additional snapshot of labour market conditions.
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