Dollar Weakens After Solid Nonfarm Payrolls, Hormuz Tensions Temporarily Ease
The US dollar weakened on Friday (May 8) after a stronger-than-expected April jobs report prompted market participants to reduce bets on an interest rate hike. US President Donald Trump's statement that the Washington-Tehran ceasefire remains in effect, despite renewed clashes in the Strait of Hormuz, also dampened demand for safe-haven assets.
The dollar index fell 0.2% to 97.91 at 2:52 PM ET (18:52 GMT). Market focus is on the implications of the jobs data for monetary policy direction, amid concerns about inflation, which has become increasingly sensitive due to the surge in oil prices due to the Middle East conflict.
Nonfarm payrolls rose by 115,000 in April, exceeding economists' expectations of 65,000, while the unemployment rate remained at 4.3%, according to the Bureau of Labor Statistics. Ahead of the release, some market participants had considered a slim chance of the Fed raising interest rates this year to address potential inflationary shocks from the war, but that probability eased after the data came out, according to the CME FedWatch tool. In general, higher interest rates tend to support the dollar.
Geopolitically, the Strait of Hormuz remains a major concern. This strategic waterway has been effectively closed since late February after Iran blocked access, triggering major supply disruptions. The US launched and then temporarily suspended its "Project Freedom" initiative to facilitate the navigation of commercial vessels, while the US military has maintained a blockade of Iranian ports and coastlines since mid-April. On Friday, the US Central Command announced it had fired on and disabled two empty Iranian-flagged tankers attempting to enter Iranian ports in the Gulf of Oman, following reports of the crippling of another empty tanker on Wednesday. The CENTCOM update followed a statement the previous day that the US military intercepted an Iranian attack on three US warships transiting the Strait of Hormuz. Fox News reported the US retaliated by striking targets in the ports of Qeshm and Bandar Abbas, citing senior US officials.
Iran stated that it was still reviewing a 14-point, one-page proposal to potentially end the conflict and had not yet reached a conclusion. Trump told ABC News that the latest attack was just a "love tap" and that the ceasefire was still "in effect," but later warned on social media that the US would strike harder if Iran didn't sign the deal soon.
In other major forex markets, sterling strengthened 0.4% to US$1.3624 amid the UK local elections, with the Labour Party reportedly suffering heavy losses, including a historic defeat in Wales, while Reform made significant gains. The euro rose 0.5% to US$1.1779. The yen strengthened slightly, with USD/JPY down 0.1% to 156.68, after the yen came under scrutiny following reports of Japanese government intervention.
Source: Newsmaker.id
