Dollar Recovers from July Lows Amid Escalating Tensions with Iran
The US dollar is recovering from its decline after the disappointing labor market report in July. The unemployment rate fell to 4.1%, but employment actually decreased by 23,000 jobs, sparking concerns about the Fed's independence and its ability to tighten monetary policy.
The EUR/USD pair surged to its highest level since June 17, when Kevin Warsh's hawkish rhetoric caught markets off guard, but bears were able to regain some ground as tensions with Iran escalated. Tehran is demanding billions of dollars in compensation for a violation of the June agreement and the withdrawal of US troops from the region.
The FOMC hawks' appetite for further rate hikes has been tempered by the disappointing labor market report, raising the probability of a September rate hike to 53% according to the futures market. However, geopolitical risks remain high, creating an opportunity to increase short positions on the EUR/USD pair.