The US Dollar Index (DXY) has remained resilient despite softer-than-expected US June jobs data, with G7 FX volatility at the lower end of long-term ranges, encouraging carry trades as one-week dollar deposit rates remain among the highest in the G10 currencies [1]. According to ING’s Chris Turner, the DXY is supported by hawkish Federal Reserve (Fed) minutes under Chair Kevin Warsh, with expectations that the Fed is committed to restoring price stability and that some members may see the next move as a rate hike [1]. Money markets are currently pricing in 31 basis points of Fed tightening for the year, down from 43 basis points at the peak last month [1].
In the USD/JPY market, MUFG’s Teppei Ino notes that the pair opened near 161.78, briefly tested 162.84, and then reversed as the dollar weakened following comments from Fed Chair Kevin Warsh that inflation risks had receded and after a softer US employment report [2]. Intervention concerns from Japanese authorities contributed to volatility, with the pair falling sharply below 161 before rebounding to the low 161 range as of July 3 [2]. The US Dollar was the strongest against the Japanese Yen among major currencies, with a 0.50% gain on the day [3].
The Swiss Franc (CHF) faced selling pressure against the US Dollar, with USD/CHF down 0.25% to near 0.8055 during the European session as the DXY traded 0.15% higher at around 101.00 [3]. The odds of a Fed rate hike by the end of September have decreased to 53.2%, down from 59.4% a week ago, as traders trimmed hawkish bets following the weaker Nonfarm Payrolls data [3]. Investors are awaiting the release of the FOMC Minutes and the US ISM Services PMI, with the latter expected at 54.2 for June, slightly below May’s 54.5 [3].
On the EUR/USD front, Commerzbank’s Michael Pfister argues that recent Euro weakness is more a reflection of US Dollar strength than Euro vulnerability, as the Euro has outperformed the G10 average [4]. Softer expectations for European Central Bank (ECB) tightening, compared to a more hawkish Fed, have widened rate differentials. However, the ECB’s proactive June hike and an anticipated September move are seen as supportive for the Euro, with only 21 basis points of tightening priced in by December [4].
CONCLUSION
Despite softer US jobs data, the US Dollar remains supported by hawkish Fed expectations and attractive carry trade dynamics. Intervention risks have shaped recent USD/JPY volatility, while the Euro and Swiss Franc have shown relative resilience or weakness based on central bank outlooks. Market participants are now focused on upcoming FOMC Minutes and ISM Services PMI data for further direction.