2026-06-26 · generated by deepseek-v4-flash

Dollar Steadies as NFP Beats, Rate Cut Hopes Fade; Geopolitical Risks Rise

US dollar holds near session highs after April nonfarm payrolls smashed expectations at +115k, while Fed officials push back on 2026 rate cuts. Geopolitical tensions in the Strait of Hormuz and ongoing Russia-Ukraine conflict underpin safe-haven demand.

Dollar Strengthens on Blowout NFP, Dovish Hopes Dashed The US dollar firmed against major peers on Friday after April nonfarm payrolls surged 115,000, sharply beating market expectations. The unemployment rate held at 4.3%, and average hourly earnings rose 3.57% YoY. The strong labor report cemented expectations that the Federal Reserve will not cut rates this year. Fed's Goolsbee noted that while positive inflation progress would lead to cuts, such progress is not yet apparent. Bank of America revised its forecast, pushing the first rate cut to 2027. The dollar index held near 105.00, with EUR/USD slipping below 1.0700 as the ECB's Escrivá flagged AI risks to financial infrastructure, adding to euro headwinds.

USD/JPY Caps Gains Amid Mixed Forces USD/JPY edged higher to 158.50 after the NFP release, but upside was capped by risk-off flows related to Middle East tensions. Iran's armed forces clashed with US vessels in the Strait of Hormuz, and Tehran is drafting legislation to regulate the waterway. The BoJ remains accommodative, but safe-haven yen bids emerged as geopolitical risk premiums rose. The market is pricing a 30% chance of a BoJ rate hike in July, limiting yen downside.

Commodity Currencies Under Pressure; Geopolitics in Focus AUD/USD fell toward 0.6500 as risk appetite waned. The RBA's neutral stance offers little support. Meanwhile, the pound slipped to 1.2500 against the dollar amid GBP/USD selling. Oil prices rallied on Hormuz tensions, briefly supporting the Canadian dollar, but USD/CAD stayed above 1.3700. The yen strengthened on cross flows. Russian budget deficit widened, adding pressure on the ruble.

CNH Firms on Policy Easing; Yuan Gains In Asia, offshore yuan (CNH) strengthened 116 pips to 6.7971 on the back of capital account liberalization in the Qianhai Free Trade Zone. Onshore yuan (CNY) closed at 6.8005, up 63 pips. The PBOC's steady hand and China's open-door policy for foreign investment are supporting the currency amid global uncertainty. Trade data from Jiangsu showed robust exports, underpinning China's economic resilience.

Outlook: NFP Sets Hawkish Tone, Geopolitical Risks Loom The week ahead is light on data, but FOMC minutes and final GDP revisions may reinforce the no-cut narrative. Markets will monitor any escalation in the Strait of Hormuz and US-Iran talks. The dollar is likely to remain firm barring a sharp deterioration in risk sentiment. Traders should watch for potential safe-haven yen and dollar bids.