Dollar Soars on Geopolitical Risks and Weaker US Jobs

The US Dollar Index (DXY) has surged above 99.50 due to ongoing geopolitical tensions in the Middle East. The DXY measures the value of the US dollar against six major currencies and has been gaining ground after registering modest losses in the previous day.

The greenback is receiving support from broad risk aversion amid high geopolitical tensions, particularly with regards to the United States-Iran conflict. Iranian officials have noted that Oman-mediated negotiations regarding the management of the Strait of Hormuz are making progress, but safe-haven demand for the dollar remains firmly intact.

Weaker-than-expected US employment data has also dampened expectations for a near-term Federal Reserve (Fed) rate hike. The Nonfarm Payrolls (NFP) unexpectedly dropped by 23,000 in July, while sharp downward revisions to 20,000 from the previous 57,000 in June highlighted weakening labor market conditions.

According to TD Securities, the rates market has 'bull steepened' on the negative headline print despite a drop in the UE rate to 4.1%. The softer data has eased concerns over a reaccelerating labor market, prompting investors to price out hikes, with September's pricing declining by 3bp to 12bp of hikes.

The FXS Fed Sentiment Index fell by 1.68 points to 137.01, indicating a pullback in perceived hawkishness even as the index remains firmly above the neutral 100 mark.