Asian Currencies Stabilize as Strong U.S. Jobs Data Boosts Dollar and Fed Rate Hike Expectations

Asian currencies traded mostly steady on Monday after suffering losses in the previous session, as investors assessed the implications of stronger-than-expected U.S. employment data and rising geopolitical tensions in the Middle East. The U.S. dollar remained supported near a two-month high, reflecting expectations that the Federal Reserve may keep interest rates elevated for longer.

The U.S. Dollar Index held close to recent highs during Asian trading hours after surging 0.7% on Friday. Meanwhile, U.S. Dollar Index futures remained largely unchanged as markets continued to digest the latest economic data.

Investor sentiment shifted after the U.S. economy added 172,000 jobs in May, significantly surpassing market forecasts. The stronger labor market report reinforced expectations that the Federal Reserve could maintain a restrictive monetary policy stance and potentially implement another interest rate increase before the end of the year. As a result, traders increased their bets on a future Fed rate hike, providing further support for the U.S. dollar.

Among major Asian currencies, the Japanese yen remained under pressure, with the USD/JPY pair trading near 160.31, its highest level since late April when Japanese authorities intervened in the foreign exchange market. Investors also reviewed revised economic data from Japan, which showed first-quarter GDP growth slowing to an annualized 1.8%, below the preliminary estimate of 2.1%.

The South Korean won weakened after recent gains, while the Australian dollar edged slightly higher following a sharp decline on Friday. The Chinese yuan also softened, with the USD/CNY pair moving higher, while the Singapore dollar and Indian rupee posted modest losses against the greenback.

Market caution was further amplified by escalating tensions in the Middle East. Iran reportedly launched missiles toward northern Israel, prompting renewed concerns about regional stability. Ongoing uncertainty surrounding the Strait of Hormuz has raised fears about potential disruptions to global energy supplies and increased inflation risks, enhancing demand for the U.S. dollar as a safe-haven asset.

Looking ahead, investors are closely monitoring upcoming U.S. consumer price index (CPI) and producer price index (PPI) reports. These key inflation indicators are expected to provide additional insight into the Federal Reserve’s future interest rate decisions and could significantly influence currency market movements in the days ahead.