The US Dollar (USD) has gained strength across multiple currency pairs, driven by rising expectations for a Federal Reserve interest rate hike in September and heightened geopolitical tensions between the US and Iran in the Strait of Hormuz [1][2][4]. The USD drew support from stronger-than-expected US employment data, with August Nonfarm Payrolls rising by 162,000, significantly above the forecast of 56,000, while the unemployment rate held steady at 4.1% and annual wage growth slowed to 3.1% [2][4]. The CME FedWatch tool indicated a 58.3% probability of a 25-basis-point Fed rate increase in September [2].
Geopolitical risks escalated after the US targeted three Iranian tankers in response to missile attacks on its warships, prompting Iran to establish a new restricted zone around the Strait of Hormuz [2][4]. These developments have fueled inflation concerns due to rising energy prices, further supporting the USD and weighing on risk assets such as Gold, which remains under selling pressure for the second consecutive day, though it shows resilience below the $4,400 mark [4].
In currency markets, GBP/USD trades with a negative bias near the 1.3500 level, but bearish conviction is lacking as traders await US inflation figures and the UK GDP report later in the week [1]. Technical indicators show GBP/USD holding above key support levels, with the RSI at 48.7 and MACD slightly negative, suggesting modest upside momentum [1]. USD/IDR extended gains for the second day, trading around 17,700, but the upside may be restrained by Indonesia's strong external buffers and fiscal prudence, with forex reserves at a five-month high of USD 146.5 billion and plans to lower the 2027 fiscal deficit to 2.4% of GDP [2]. Bank Indonesia Governor Destry Damayanti emphasized a "stability-first" policy approach, focusing on safeguarding the Rupiah and macro stability [2].
Elsewhere, EUR/JPY declined below 181.50 as the Japanese Yen strengthened on expectations of a Bank of Japan rate hike in September, with further hikes anticipated quarterly until January next year, according to economic adviser Takuji Aida [3]. The European Central Bank is also expected to raise rates at its upcoming meeting, potentially bringing its deposit rate to 2.50% [3]. Technical analysis indicates EUR/JPY is in a bearish near-term bias, with the RSI hovering just above 30, signaling emerging oversold conditions [3].
Analysts at TD Securities view the US labor market as resilient and improving, while Fed Governor Christopher Waller signaled a preference for keeping rates steady if inflation pressures ease, causing USD bulls to await upcoming US inflation data for further cues [4]. The US Producer Price Index (PPI) and Consumer Price Index (CPI) releases later this week are expected to influence the Fed's policy path and impact USD and Gold price dynamics [4].
CONCLUSION
The US Dollar's strength, fueled by robust employment data, Fed rate hike expectations, and geopolitical tensions, has led to notable moves across major currency pairs and commodities. Market participants are closely watching upcoming US inflation data and central bank decisions for further direction. The prevailing sentiment is cautious, with risk assets under pressure and safe-haven flows supporting the USD.