US Dollar: Supported by higher yields and Fed repricing – MUFG

MUFG’s Lloyd Chan notes that Brent Oil prices remain elevated as US–Iran tensions persist, helping to support the US Dollar. Strong US data, including ADP employment and ISM services, reinforce expectations of a “higher for longer” Fed stance.

US data reinforce higher-for-longer Fed view

"Brent crude prices have edged modestly higher, remaining elevated amid continued US–Iran hostilities, with progress towards a peace agreement still stalled. Against this backdrop, the US dollar (DXY) has strengthened modestly, supported by a renewed rise in front-end yields. The US 2-year Treasury yield remains above 4%, reinforcing a carry-driven bid for the dollar."

"On the US macro front, economic momentum remains resilient. ADP employment increased by 122k in May, up from 105k in April and slightly above consensus expectations of 120k. Meanwhile, ISM services rose to 54.5 from 53.6, also beating consensus of 53.8."

"Within the details, new orders accelerated sharply to 57.3 from 53.5, highlighting sustained demand. However, the services employment component edged lower to 47.9 from 48.0, missing expectations of 48.8 and remaining in contractionary territory. The prices paid index rose to 71.3 from 70.7, though this was slightly below the 72.3 consensus."

"The macro backdrop continues to anchor market expectations for “higher for longer” fed funds rate, with implications across Asia FX. JPY, KRW, and SGD tend to be quite sensitive to shifts in US rate expectations. Currencies such as IDR, PHP and INR have also come under pressure from rising US rate expectations."

"Initial jobless claims due later today could provide incremental guidance for Friday’s nonfarm payrolls release."

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