2026-05-13 · generated by deepseek-v4-flash

Dollar Wavers After US Jobs Beat, Inflation Expectations Ease

The dollar traded mixed Monday as a solid US payrolls report was offset by a drop in consumer inflation expectations, keeping Fed rate-cut hopes alive. Geopolitical tensions in the Strait of Hormuz and ECB warnings on AI risks added to the cautious tone.

Dollar Mixed After Data The dollar ended the Asian session on a mixed footing as traders digested a batch of conflicting US signals. April nonfarm payrolls rose 115,000, beating market expectations, and the prior two months were revised down by 16,000. However, the University of Michigan's 1-year inflation expectations fell to 4.5% (from 4.7%), below the forecast, while the 5-year reading dipped to 3.4%. The combination of a strong labor market and easing price pressures left the dollar without a clear direction.

EUR/USD Steady on ECB Caution EUR/USD retained a tight range near 1.0850, supported by cautious ECB commentary. Board member Escrivá said AI risks are prompting a review of financial infrastructure, while Nagel stressed the ECB will act to control energy-price inflation. The pair also drew support from a softer dollar amid easing US inflation expectations. However, renewed geopolitical risk from the Strait of Hormuz – where Iran and US vessels clashed – weighed on risk appetite and capped euro gains.

USD/JPY Under Pressure USD/JPY slipped toward 129.50 as the combination of lower US yields and falling inflation expectations weighed on the dollar. With the Bank of Japan maintaining its ultra-loose stance, the pair remains sensitive to US rate expectations. The Fed's Goolsbee reiterated that rate cuts require inflation progress that has yet to materialize, while BofA now expects no cut until 2027. This outlook, together with the nonfarm beat, initially lifted USD/JPY, but the subsequent drop in inflation expectations reversed the move.

USD/CNY Strengthens on Policy Support The offshore yuan firmed 116 pips to 6.7971 per dollar, while onshore CNY closed at 6.8005, up 63 pips from Thursday night. The move was spurred by the implementation of two FX liberalization pilot policies in the Qianhai Free Trade Zone, which signal further capital account opening. China's broader efforts to attract foreign capital were highlighted by an article stating that foreign firms see China as an anchor of global stability, while Jiangsu's first-quarter trade growth surged 17.2% year-on-year.

Geopolitical Risks in Focus Heightened tensions in the Middle East added a risk premium to the dollar and safe-haven currencies. Iran is weighing a response to a US peace proposal, while its parliament drafts a law on the Strait of Hormuz. Meanwhile, a UK destroyer is being deployed for escort missions in the waterway. The Federal Reserve's Financial Stability survey flagged geopolitical conflict and oil supply shocks as the top risks to US financial stability. Any escalation could boost the dollar and the yen, while weighing on commodity currencies and the euro.