Dollar snaps two-week win streak as traders eye labor market data for rate cues

The U.S. dollar slipped on Monday, losing some steam after a two-week win streak that took it to its highest level since mid-May 2025. Currency market participants were focused on labor market data in the days ahead for more cues on monetary policy following inflation data last week.

The dollar also slipped as risk sentiment trumped safe haven demand, with equities bouncing back after steep losses last week. A flare-up in Middle East tensions over the weekend dissipated after President Donald Trump said Iran had requested a meeting with the U.S. in Qatar.

At 15:59 ET (19:59 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major peers, was down 0.3% to 101.11. The gauge had climbed 1.6% over the last two weeks.

Jobs data in the spotlight

The dollar’s rise over the last fortnight was driven by elevated expectations for Federal Reserve interest rate hikes, which also led to a bond sell-off that boosted U.S. Treasury yields. The central bank’s preferred inflation gauge last Thursday ticked up to its highest annual level in May since October 2023, while its headline measure posted its highest annual increase since April 2023. Still, both figures matched economists’ expectations.

Despite the elevated annual readings, watchers of monetary policy reacted by marginally trimming their odds for Fed interest rate hikes this year and slightly adding to their bets for the central bank to keep rates steady. The move was driven by a belief that the May inflation readings were a peak in terms of price pressures, as oil prices have rapidly declined to levels from just before the start of the Middle East conflict and have eased inflationary concerns.
Labor market data this week will provide more cues for the Fed. On Tuesday, April job openings will come in, followed by ADP’s report on U.S. private employment for the same month on Wednesday. Thursday will see the all-important May nonfarm payrolls report. If the reports come in strong, it will likely give the Fed even less breathing room for any potential policy easing. 

“The Job Openings and Turnover Survey (JOLTS) and its accompanying April revision, scheduled for release tomorrow, could lift interest rates and the greenback materially if it builds on the prior print’s 23-month high,” José Torres, senior economist at Interactive Brokers, said.

“Every forecaster surveyed on the Street expects a decline, amplifying the potential turbulence of an upside surprise. This indicator doesn’t typically jolt the market, but if for-hire signs have risen significantly against the backdrop of elevated inflation, then it will warrant an increasingly hawkish Federal Reserve that will worry less about employment conditions and focus more on price pressures,” he said. 

“Such a result, if accompanied by stronger-than-expected results from ADP, Challenger and the government later in the week, could set the stage for a summer of volatility, as the Treasury complex reacts to a labor market that unexpectedly reaccelerated to an on-fire state. Conversely, weaker-than-projected figures are likely to be bullish, as limited economic slowdown risks coincide with a dovish tilt in rate-hike expectations,” Torres added.

Lagarde says ECB tightening was not an ’insurance hike’
On Monday, another major central bank was in focus as the European Central Bank’s (ECB) annual forum in Sintra, Portugal got underway. ECB President Christine Lagarde in her introductory speech said Europe was becoming more resilient to economic shocks.

Lagarde also addressed the ECB’s decision earlier this month to raise its key interest rates for the first time since 2023.

“Some have characterized our rate increase earlier this month as an ’insurance hike.’ That is not an accurate description,” she said.

“We faced an outlook of rising headline and core inflation, and a projection that saw inflation returning to 2% only in the last quarter of 2027, which was itself conditional on monetary policy adjusting. Our analysis showed that holding interest rates constant would have left inflation north of 2% in 2027 and 2028. This was a decision based on what we saw in front of us,” Lagarde added.

Against this backdrop, the euro was last up 0.4% to $1.1424, while the sterling added 0.4% to $1.3259.

Yen slides to lowest level against the dollar since 1986
Elsewhere, the Japanese yen continued to slide in what has become a historic decline that has made Tokyo jittery. The USD/JPY pair was last up 0.1% to 161.93, earlier hitting a session high at 161.98. Government authorities have already shelled out a record 11.73 trillion yen, or over $70 billion, to prop up the currency earlier this year in its first direct market intervention since 2024.

The yen’s slide has also come at a time when, after nearly two decades of 0% interest rates, the Bank of Japan tightened policy in response to higher energy prices sparked by the Iran war. 

Separately, data showed that Japan’s retail sales in May jumped 5.3%, much higher than the 3.1% consensus and a tick up from April’s 2.8% rise.    

Trump says Iran has asked for a meeting 

Looking at the Middle East conflict, the U.S. and Iran exchanged fresh strikes on Friday and over the weekend, in what was the biggest test of diplomacy between the warring sides since an interim memorandum of understanding (MoU) was inked on June 17.

Tensions were cooled after President Trump on Monday morning said on his Truth Social service that Iran had requested a meeting which will take place in Doha on Tuesday. White House Press Secretary Karoline Leavitt told Fox News that U.S. Special Envoy Steve Witkoff and Jared Kushner will be flying to Doha for the meeting, adding that as far as the U.S. was concerned, “we’re holding up our end of the ceasefire.”