TLDR
- The dollar held near a one-year high as traders increased bets on a Federal Reserve rate hike
- The yen slipped close to its weakest level since 1986, around 161.73 per dollar
- UK Prime Minister Keir Starmer announced his resignation, pushing the pound lower
- US-Iran talks produced a roadmap for a deal within 60 days, sending oil prices down nearly 2%
- Speculators now hold the largest bullish dollar position in 16 months, worth nearly $30 billion
The dollar is holding near its strongest level in a year as markets bet the Federal Reserve will raise interest rates. The yen is close to a 40-year low, and political news out of the UK sent the pound sliding.
The Federal Reserve signaled at its meeting last week that it could raise rates before the end of the year. That pushed traders to bring forward their expectations for tightening.
The dollar index, which tracks the dollar against six major currencies, was sitting at around 101. That is up nearly 3% for the year so far.
Speculators have piled into bullish dollar bets. Data from the Commodity Futures Trading Commission shows those bets now total nearly $30 billion — the largest in 16 months.
CIBC’s head of G10 currency strategy Jeremy Stretch said the dollar is likely to stay firm. He noted that as long as markets see the Fed raising rates at least once this year, the dollar has room to move higher.
Even a Bank of Japan rate hike may not be enough to slow the dollar’s rise against the yen, Stretch added.
Yen Slides Toward Levels Not Seen Since 1986
The Japanese yen was trading at around 161.73 per dollar on Monday. A move past 161.96 would take it to its lowest point since 1986.
Japan’s Finance Minister Satsuki Katayama said authorities are ready to respond to currency moves at any time.
But analysts are skeptical that intervention would work. StoneX senior market analyst Matt Simpson said Tokyo may feel “powerless” given the strong push from Fed rate expectations.
Japan spent a record 11.7 trillion yen on intervention as recently as April 30. Those gains have since been wiped out entirely.
UK Political Uncertainty Weighs on the Pound
UK Prime Minister Keir Starmer said he would resign on Monday, sending the pound down 0.1% to $1.322.
Labour rival Andy Burnham is seen as the frontrunner to replace him. Burnham has told markets he will stick to the UK’s fiscal rules.
MUFG analyst Lee Hardman said that commitment has provided some reassurance, limiting the downside for the pound in the near term.
Oil Falls on Iran Deal Progress
US-Iran talks produced a roadmap for a final deal within 60 days, according to mediating nations Qatar and Pakistan. Oil prices fell nearly 2% on the news, with Brent crude dropping to $79.10 a barrel.
Iran also announced it had closed the Strait of Hormuz, which kept some uncertainty in the market.
Commerzbank analyst Thu Lan Nguyen noted the dollar has not been hurt by falling oil prices because rate expectations are doing the heavy lifting. If oil rises again and fuels inflation, that could push rate bets — and the dollar — even higher.
The dollar index reached a one-year high of 101.127 on Friday before pulling back slightly on Monday.
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