Last Updated on 10/08/2026
- The US Dollar remains supported by strong safe-haven inflows as uncertainty persists over the reopening of the Strait of Hormuz.
- A larger-than-expected decline of 23,000 jobs in July, coupled with downward revisions to previous payroll figures, points to a softening US labor market and reduces expectations for further Federal Reserve tightening.
- According to the CME FedWatch Tool, the probability of a September Fed rate increase has fallen to 46%, compared with 67% previously.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, edged higher to around 99.70 during Monday’s Asian session, recovering after posting slight losses in the previous trading day.
Demand for the US Dollar remains supported by a cautious market mood as geopolitical risks stay elevated. The conflict between the United States and Iran has entered a sensitive diplomatic stage, while ongoing military activity and uncertainty surrounding the Strait of Hormuz continue to drive investors toward safe-haven assets. Although Iran indicated that Oman-mediated talks on managing the waterway are progressing, traders remain reluctant to abandon defensive positions, helping the Dollar retain its strength.
Meanwhile, softer US labor market data has reduced expectations for additional Federal Reserve tightening in the near term. July’s Nonfarm Payrolls report showed an unexpected decline of 23,000 jobs, while June’s payroll growth was revised down sharply to 20,000 from 57,000, reinforcing signs of a cooling employment environment.
Market expectations for a September rate hike have consequently weakened. Data from the CME FedWatch Tool shows traders now assign roughly a 46% chance of a 25-basis-point increase next month, compared with 67% a week ago. Attention is now shifting toward upcoming US inflation releases for further guidance on the Fed’s policy path.
Bond Market Reaction
Analysts at TD Securities noted that Treasury yields moved lower and the yield curve steepened following the disappointing payroll figures, even as the unemployment rate eased to 4.1%. The weaker employment data helped alleviate concerns that the labor market was reaccelerating, leading investors to scale back expectations for future rate increases. As a result, pricing for September tightening was reduced by around 3 basis points.
Barkin Signals Balanced but Cautious Outlook
Richmond Fed President Thomas Barkin struck a somewhat more cautious tone, emphasizing that current labor market conditions reflect a “low-hire, low-fire” environment. His remarks suggest employment remains weak but stable rather than deteriorating sharply, reducing the urgency for further policy tightening.
At the same time, Barkin highlighted the resilience of corporate earnings, noting that company profits remain strong and continue to grow. This could limit the scope for a more dovish Fed stance if labor market softness does not spread more broadly across the economy.
The FXS Fed Sentiment Index declined by 1.68 points to 137.01, indicating a moderation in perceived hawkishness. Nevertheless, the index remains well above the neutral 100 level, suggesting that overall Fed communication continues to lean toward maintaining a relatively restrictive monetary policy stance.
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