USD steady amid safe-haven demand
The US Dollar remained relatively steady as escalating tensions in the Middle East continued to support safe-haven demand, while stronger Treasury yields reinforce the currency.
A fresh wave of incidents in the region has intensified geopolitical risks and affected sentiment across markets.
Continued instability in the region could sustain defensive flows into the greenback and could push bond yields to the upside in the days ahead.
Additionally, the dollar and yields remained supported by more hawkish monetary policy expectations. May non-farm payrolls came in at 172,000 against expectations of 85,000, an upside surprise that has driven markets to price a stronger probability of a Federal Reserve interest rate hike by December. This hawkish repricing provides a durable tailwind for the currency and yields heading into the June FOMC meeting.
Attention now turns to today’s US consumer inflation release. A hot CPI print could cement expectations of tighter Fed monetary policy and push the dollar and yields to the upside. Any further deterioration in the Middle East would amplify safe-haven demand and inflation expectations, boosting the dollar and yields.
