New York Forex: Dollar Rebounds After Two Weeks of Declines; Yen Gives Back Gains from Intervention

The U.S. dollar rebounded Monday (10th) from a two-week losing streak, as persistently rising oil prices boosted risk-averse demand, providing support for the dollar. Foreign exchange market participants are digesting the weaker-than-expected July employment report, which triggered a rapid reassessment of Federal Reserve (Fed) rate hike expectations. Attention has now shifted to key inflation data due later this week for further clues on interest rate direction. Meanwhile, the yen weakened nearly 1% against the dollar on Monday, giving back some of the gains achieved after last month’s historic joint foreign exchange intervention.

At the close of trading in New York, the U.S. Dollar Index (DXY), which tracks the dollar against six major currencies, rose 0.3% to 99.82. This follows a cumulative decline of nearly 2% over the past two weeks.

Oil prices rose nearly 5% on Monday, as Iran ruled out direct negotiations with the United States and stated that the Strait of Hormuz could only be fully reopened if Washington met specific conditions. Additionally, attacks by Iran-backed Houthi rebels on Saudi Arabia’s energy infrastructure further heightened market concerns over regional oil shipments. Against this backdrop, traders are turning to the dollar, a safe-haven asset.

Iranian state media reported that a parliamentary committee has approved a management framework, including provisions to ban hostile vessels from passing through. Iranian Foreign Ministry spokesperson Esmaeil Baqaei said Monday that Iran and Oman have not yet finalized a joint statement on Strait management, adding that the plan would include mechanisms to monitor vessel passage and should be compensated accordingly.

Iran also ruled out direct talks with the U.S., claiming Washington violated a temporary peace agreement reached in June. Tehran reiterated its conditions for fully reopening the Strait of Hormuz, including ending the U.S. naval blockade, lifting sanctions, and compensating for war-related damages.

Trump said Monday that Iran is demanding compensation for losses incurred since the joint U.S.-Israeli attack on Tehran in late February. Trump stated he would also “demand compensation from Iran” and has instructed his representatives to “ensure this point is included in any future negotiations.”

Inflation Data in Focus

Shifting focus from Middle East tensions, the dollar fell 0.4% on Friday after data showed U.S. nonfarm payrolls declined for the first time since February, primarily due to fewer education-related jobs at the local government level. Additionally, May and June nonfarm payrolls were revised downward by a combined 103,000.

This employment report complicates the Fed’s policy outlook. On one hand, despite the weak latest data, the overall labor market remains robust. On the other hand, war-related oil price volatility has significantly increased inflation risks, and some Fed policymakers showed clear inclinations toward rate hikes at their most recent July monetary policy meeting.

After the employment data release, traders lowered their expectations for a Fed rate hike in September.

Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management, said, “The benefit of the weaker July labor market report is that it may give policymakers more room to keep rates unchanged. Over the past few years, we’ve repeatedly seen the Fed prioritize the employment leg of its dual mandate. So, despite elevated inflation, it’s not surprising that the Fed takes a cautious stance on further hikes, especially given two consecutive slightly weak labor market reports.”

Market focus has now turned to key inflation indicators due this week for further clues on monetary policy direction. The highlights will be the July Consumer Price Index (CPI) and Producer Price Index (PPI), released Wednesday and Thursday, respectively, followed by the July retail sales data on Friday.

Yen Gives Back More Post-Intervention Gains

The yen weakened sharply on Monday, with USD/JPY rising 0.9% to 159.26. The yen has now given back some of the gains achieved after last month’s historic intervention, when the U.S. and Japan conducted their first joint yen-buying operation since 2011.

Before the intervention, the yen had fallen to 164 against the dollar, a 40-year low. Continued yen depreciation could pressure Japan’s economy, which is highly dependent on imports. To support the yen, Japanese authorities typically sell U.S. Treasury bonds—Japan being the largest single foreign holder of U.S. Treasuries—to raise funds for buying yen.

Japan’s financial markets are closed on Tuesday (11th) for a national holiday.

Among other major currencies, the euro fell 0.1% against the dollar to 1.1541.

The British pound rose 0.1% against the dollar to 1.3507.

As of around 6:00 a.m. Taiwan time on Tuesday (11th):

The U.S. Dollar Index stood at 99.8112. -0.0002%

EUR/USD exchange rate at 1.1542. 0.0000%

GBP/USD exchange rate at 1.3506. -0.148%

AUD/USD exchange rate at 0.7055. +0.0142%

USD/CAD exchange rate at 1.3939. -0.0072%

USD/JPY exchange rate at 159.3000. 0.0000%