The dollar headed for its biggest monthly gain in nearly a year on Monday, supported by growing expectations that the US Federal Reserve will raise interest rates, along with optimism about the strength of the US economy, while investors awaited developments in the Middle East before the release of the highly anticipated US jobs report later in the week.
This came as the US and Iran exchanged fresh attacks over the weekend, before the two sides agreed to a ceasefire and hold talks in Qatar on Tuesday, leaving investors on tenterhooks about whether the ceasefire would hold and pushing oil prices higher.
The euro rose 0.2% to $1.1399, after hitting its lowest level against the dollar in 13 months last week, but is still on track for a monthly loss of 2.4%.
The dollar index, which measures the performance of the US currency against a basket of six major currencies, held steady at 101.34, near its 13-month high reached last week. The dollar has risen against all major currencies this month, with its strongest gains against the currencies of Scandinavia, Australia, and New Zealand, which have fallen between 4.7% and 7%.
The dollar's gains came amid rising inflationary pressures and Federal Reserve Chairman Kevin Warsh's more hawkish tone than expected, prompting markets to reassess their expectations for interest rate cuts this year. The AI-driven boom in US stock markets also contributed to strong capital inflows into the United States.
The dollar is on track to record monthly gains of about 2.5% in June, its biggest monthly rise since July 2025.
Jane Foley, senior currency analyst at Rabobank, said that these gains are highly significant, given that markets have been discussing the possibility of the dollar experiencing a structural decline in its value over the past period.
She added to CNBC: Even if some believe there is a structural decline in the dollar, there is still room for a cyclical upward trend, and that is what we are currently witnessing.
Foley explained that part of the dollar's strength is due to the fact that markets have priced in expectations of the US Federal Reserve raising interest rates later than they did for the Bank of England and the European Central Bank, as well as the flow of investments into US assets, particularly the stock market, since the outbreak of the war.
Weekly data from US regulators showed that investors hold the largest long positions in the dollar against major currencies since 2019, worth about $36.4 billion, according to data from the London Stock Exchange Group (LSEG).
