US dollar heads for best month in a year as Gulf risk lifts haven demand

The US dollar is ending June with the kind of support that comes from fear, rates and relative economic strength.

It eased slightly on Monday, but the broader move remained firmly in its favour as investors weighed renewed Gulf tensions, rising oil prices and a crucial week of US labour data.

The greenback has also benefited from a sharp rethink of the Federal Reserve’s policy path after a more hawkish tone from Chair Kevin Warsh.

That has left rival currencies struggling, with the yen pinned near a 40-year low and high-beta currencies nursing steep monthly losses.

Dollar rally holds despite a softer start

The dollar index was little changed near 101.36, still on track for a 2.5% gain in June. That would mark its strongest monthly advance since July last year.

The move has been driven by a mix of safe-haven demand and rate expectations.

Fresh US-Iran tensions over the weekend lifted oil prices after shipping through the Strait of Hormuz was disrupted again.

Washington and Tehran later agreed to halt retaliatory strikes and meet in Qatar on Tuesday, but the ceasefire remains fragile enough to keep investors defensive.

Higher oil is important for currencies because it can feed inflation and reduce the scope for easier policy.

That has supported the dollar at a time when markets are no longer convinced the Fed will cut rates this year.

Yen and risk currencies remain under pressure

The yen traded around 161.75 per dollar, close to its weakest level in four decades.

The currency remains beyond the 160 level that many traders see as a possible trigger zone for Japanese intervention, although Tokyo has so far relied mainly on verbal warnings.

Elsewhere, the euro was steady near $1.1387 after touching a 13-month low last week.

It is heading for a monthly decline of about 2.3%. Sterling slipped to around $1.3198 and was down roughly 2% for June.

Risk-sensitive currencies have fared worse. The Australian dollar traded near $0.6885, leaving it on course for a monthly drop of about 4.1%.

The New Zealand dollar was near $0.5635 and down almost 5.9% for the month.

Jobs data and ECB forum set the next test

The next major test is the US jobs report.

Payrolls and unemployment data later this week will help investors judge whether the labour market is strong enough to justify higher rates for longer.

Currency strategists say a resilient labour market would strengthen the “US exceptionalism” trade, where the dollar benefits from relatively stronger growth and tighter policy expectations.

The European Central Bank’s annual forum is also in focus.

ECB President Christine Lagarde opens the event on Monday, while a midweek policy panel featuring Warsh could give markets a clearer sense of how the new Fed chief is thinking about inflation, oil and financial volatility.

For now, the dollar’s advantage remains intact. The greenback may wobble day to day, but Gulf risk and Fed uncertainty are keeping buyers close.