By Rocky Swift
TOKYO, June 1 (Reuters) – The U.S. dollar held steady on Monday after a weekly loss as markets awaited progress of peace talks in the Middle East and signals on the timing of central bank moves.
The six-currency dollar index edged lower last week on hopes for a deal between the United States and Iran to open the Strait of Hormuz shipping lane for oil. Oil jumped in early trade after Israel ordered troops to move further into Lebanon, while the U.S. and Iran claimed new strikes on each other.
U.S. jobs data later in the week will be in focus as Federal Reserve officials signal that the U.S. central bank may need to raise rates if the war accelerates already-high inflation.
“USD will be heavily influenced by developments in the U.S.-Iran war and the U.S. nonfarm payrolls report for May,” said Joseph Capurso, head of FX at Commonwealth Bank of Australia.
“Once the Strait is reopened, over time the oil price will fade and interest rates will return as a greater influence on the USD,” he added in a note.
The dollar index of the greenback against a basket of currencies including the yen and the euro, rose 0.04% to 99.05, after last week’s drop of 0.4%. The euro fell 0.13% to $1.1644.
The yen weakened 0.13% to 159.48 per dollar. Sterling slipped 0.07% to $1.3449.
The U.S. said it conducted “self-defense strikes” on Iranian radar and drone control sites over the weekend, while Iran said on Monday its aerospace force had targeted an air base used in an attack. The hostilities came after U.S. President Donald Trump said on Friday he would soon decide on a proposed deal to extend the ceasefire with Iran.
U.S. Secretary of State Marco Rubio spoke with Lebanese President Joseph Aoun and Israeli Prime Minister Benjamin Netanyahu on a plan to allow for “gradual de-escalation,” a U.S. official said on Sunday. Netanyahu had said on Sunday that he ordered troops to move further into Lebanon in the battle against Hezbollah.
Markets are betting the Fed’s next move will be to raise its key rate compared with expectations for a cut before the start of the Iran war. Outgoing Fed Governor Jerome Powell warned in a speech on Sunday about politicisation of monetary policy, while Beth Hammack, Lorie Logan, and Mary Daly are among Fed officials due to speak later in the week.
“The lineup of Federal Reserve speakers throughout the week should continue to reinforce a balanced two-way policy approach, with officials remaining open to both rate hikes and rate cuts depending on incoming data,” Chris Weston, head of research at Pepperstone, wrote in a note.
U.S. nonfarm payrolls figures due on June 5 are expected to show an unemployment rate of 4.3% and an increase of 85,000 jobs, according to a Reuters poll. And later on Monday, the Institute for Supply Management’s PMI gauge of manufacturing activity is expected to have edged up to 53 in May from 52.7 the previous month.
In a speech earlier in the day in South Korea, European Central Bank board member Isabel Schnabel said that increased use of stablecoins, which are largely pegged to the U.S. dollar, could undermine the euro and some nations’ ability to set monetary policy. Last week, she said the ECB should raise rates this month even if a U.S.-Iran peace deal is reached.
A speech by Bank of Japan Governor Kazuo Ueda on Wednesday is highly anticipated for signals as to whether the central bank will proceed with a rate increase the following week.
While there is no consensus yet within the BOJ on the decision, a pause in the central bank’s taper of government bond purchases is increasingly seen as a preferred option, said two sources familiar with the deliberations.
The Australian dollar traded flat at $0.7182 against the greenback, while New Zealand’s kiwi slid 0.33% to $0.5968.
($1=159.4100 yen)
(Reporting by Rocky Swift; Editing by Clarence Fernandez and Shri Navaratnam)
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