- In May, the U.S. non-farm payrolls increased by 172,000, exceeding expectations and fueling strong market anticipation of a Federal Reserve (Fed) rate hike by the end of the year. The CME's FedWatch tool shows the probability of a December rate hike has surged to over 70%.
- The escalation of geopolitical tensions in the Middle East has raised concerns about global energy supply, putting pressure on multiple currencies. The exchange rates of the euro against the dollar (EURUSD), the Australian dollar against the dollar (AUDUSD), and the New Zealand dollar against the dollar (NZDUSD) have collectively hit a two-month low.
- The yen's exchange rate against the dollar fell back to 160.34, nearly erasing the gains from previous official interventions. The market is closely watching whether the Bank of Japan (BOJ) will signal a strong rate hike this month due to inflationary pressures.
Strong Employment Data Shifts Policy Expectations
The latest May non-farm employment report released by the U.S. Department of Labor shows an increase of 172,000 jobs, significantly exceeding previous market expectations. This macroeconomic data indicates that despite ongoing global energy price shocks, the U.S. labor market continues to demonstrate strong resilience. Capital Economics' Chief Market Economist, Linus Goltermann, stated that the acceleration in the labor market significantly increases the likelihood of the Federal Reserve's Open Market Committee tightening monetary policy later this year. Market participants have begun to reprice the Fed's policy path, anticipating two rate hikes of 25 basis points each by the end of the year, with the policy balance tilting towards a hawkish stance.
Geopolitical Risks Boost the Dollar Index
While the non-farm data provides fundamental support, sudden geopolitical conflicts in the Middle East have further heightened market risk aversion. Israel's attacks on military targets in western and central Iran have sparked widespread concerns about a global energy crisis potentially driving up inflation. Against this backdrop, the dollar index remains strong, with non-U.S. currencies generally under pressure. The euro fell to a two-month low of 1.1507 against the dollar, the British pound (GBPUSD) fluctuated around 1.33165, and both the Australian and New Zealand dollars also declined. If the Middle East geopolitical situation is not effectively controlled, the inflation risk from a rebound in commodity prices may prompt further marginal changes in the policies of major global central banks, making the trend of safe-haven funds converging on dollar assets difficult to reverse in the short term.
Yen Nears Intervention Range Testing Central Bank Resolve
As the dollar strengthens across the board, the yen's exchange rate against the dollar has fallen again to 160.34, almost giving back all the gains recorded after the Japanese Ministry of Finance's 11.7 trillion yen forex intervention a month ago. At that time, the yen had touched a low of 160.725. Market sources indicate that unless there is a severe escalation in the Middle East conflict causing significant global market turmoil, the Bank of Japan is still expected to announce a rate hike this month to address the rising import fuel costs from the energy shock. OCBC strategist Sim Moh Siong believes that since rate hike expectations have been partially priced in by the market, the subsequent movement of the yen's exchange rate will depend on whether the Bank of Japan releases a tightening signal beyond market expectations. Without an unexpectedly hawkish statement, the yen's exchange rate may continue to lack a clear upward rebound direction.
Cryptocurrency Moderately Rebounds Amid Multiple Pressures
After a significant pullback the previous week, the cryptocurrency market saw a moderate rebound on Monday. Bitcoin prices rose to $63,093.86, and Ethereum prices increased to $1,679.40. However, due to the ongoing popularity of AI-related stocks this year, along with a series of high-profile IPOs such as SpaceX absorbing a large amount of market liquidity, the diversion effect has long suppressed digital assets. Market analysis indicates that if global macro liquidity continues to tighten due to Fed rate hike expectations, the valuation correction pressure on the cryptocurrency market may persist. Investors are weighing the asset allocation between tech growth stocks and digital assets, which has also led to a relatively weak overall performance in the cryptocurrency market.
