US Dollar: Fed stress test shapes path into June FOMC – DBS

FXStreet Insights Team FXStreet

DBS Group Research’s Philip Wee argues that strong US nonfarm payrolls and a projected jump in May CPI to 4.2% YoY should keep the Dollar supported into the June FOMC. However, he warns that USD strength may fade afterwards if new Fed Chair Kevin Warsh cannot convincingly defend Federal Reserve independence during what he calls a structural "stress test".

USD support into but not after FOMC

"Last Friday’s significantly stronger US nonfarm payrolls report has forced the market to price out any remaining structural easing bias, putting the prospect of a Fed hike in 2026 firmly back on the table."

"Apart from May’s 172k beating the 88k consensus, the upward revision to April’s 115k to 172k should neutralize the hawkish setups expected from other central banks in the Eurozone, Japan, and New Zealand, keeping the USD bid into the June 16-17 FOMC meeting."

"On June 10, markets will brace for May CPI inflation to jump to a three-year high of 4.2% YoY."

"In summary, the upcoming June FOMC meeting is no longer just a routine policy review."

"The USD’s trajectory will depend not solely on incoming data but on whether the Fed can survive its first major structural "stress test" without cracking from within."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD sits near monthly high, around 0.7035 on hawkish RBA

AUD/USD trades around 0.7030-0.7035 in the Asian session on Thursday, near its monthly top, as recent hawkish comments from RBA officials continue to underpin the Australian Dollar. The US Dollar, meanwhile, struggles to lure buyers amid further declines in US bond yields, adding support to the pair. However, Fed rate-hike bets and geopolitical uncertainty help limit losses for the safe-haven buck, warranting caution for Aussie bulls.

USD/JPY remains confined in a familiar range; holds steady above 158.00

USD/JPY extends its consolidative price action through Thursday's Asian session, trading just above 158.00 amid diverging forces. Uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. The US Dollar, meanwhile, languishes near multi-week low amid declining US bond yields. Furthermore, looming intervention risks limit JPY losses and cap the pair. Traders also seem hesitant ahead of the Fed and BoJ meetings next week.

Gold hangs near one-week low; eyes $4,100 break amid Fed hike bets

Gold attracts fresh sellers in Thursday’s Asian session, sliding closer to a one-week low touched the previous day. Firming expectations for an imminent Fed rate hike, bolstered by oil-driven inflation risks, weigh on the non-yielding bullion. Meanwhile, declining US bond yields counter geopolitical uncertainty, keeping US Dollar bulls on the defensive. This helps XAU/USD defend $4,100.

Dogecoin Labs launches, resistance looms

Dogecoin (DOGE) Labs launched Wednesday in partnership with the Dogecoin Foundation, bringing together several product teams and technologies to expand the use of the memecoin (DOGE) across payments, decentralized finance (DeFi) and consumer applications. The launch will consolidate MyDoge, DogeOS and Such App under one business, led by Jordan Jefferson, founder of MyDoge and DogeOS.

What the midterm elections mean for Treasury yields, the Dollar and Gold

Democrats are priced to take the House, so November 3 comes down to the Senate and how much Washington can borrow without the other party. Treasury yields will show the answer first, then the Dollar and Gold. On November 3, Americans vote for all 435 House seats and 35 Senate seats. For bond prices, the result comes down to one thing: how much the government will borrow over the next two years.

The US Dollar fell. Gold didn't rally. That tells you everything

Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.