Dollar Loses Ground Amid Inflation Fears and Rate Hike Expectations

The US dollar struggled to gain traction on Monday despite increased expectations of a Federal Reserve rate hike this month. According to traders, there is now a roughly 57% chance that the Fed will raise rates in response to the strong nonfarm payrolls release last week.

However, Middle East tensions and concerns over inflationary pressures have tempered the dollar's gains. The European Central Bank (ECB) is expected to hike rates to 2.75% on Thursday, while futures imply a 75% chance of another increase to 3.0% by December.

The Japanese yen benefited from rising expectations of a BOJ rate hike this month, with the currency gaining more than 0.2% against the dollar. Eric Robertsen, global head of research and chief strategist at Standard Chartered, noted that while carry trades have been strong year-to-date, the recent burst of yen strength is a potential threat to their outperformance.

Meanwhile, other major currencies such as the euro, sterling, Australian dollar, and New Zealand dollar were relatively stable or saw minor changes. Bitcoin remained above $80,000, having drawn support from investors diversifying away from the dollar into other assets.