Rate Hike Bets Gain Ground (8-12 June)

Strong US labor market data set the tone across asset classes, reinforcing expectations that the Federal Reserve could deliver another rate hike later this year.

The US Dollar Index held near 100 after gaining more than 1% last week, while Treasury yields climbed, with the 10-year yield reaching 4.57%. Payroll growth exceeded forecasts, unemployment remained at 4.3%, and job openings rose to 7.618 million, signaling continued resilience in the US economy.

Currencies

Dollar Index: The US Dollar Index traded near 100 on Monday after rising more than 1% last week following strong employment data. May payrolls exceeded forecasts while unemployment held at 4.3%. The data reinforced expectations of a Federal Reserve rate hike later this year, while higher oil prices and tensions in the Middle East added to inflation concerns.
Euro: The euro fell below $1.16, its weakest level since early April, as strong US labor data supported the dollar. Markets now fully price in a Federal Reserve rate hike by year-end. An ECB rate increase is also expected next week after higher inflation readings, although concerns persist following the Eurozone’s unexpected first-quarter contraction.
British Pound: The pound slipped below $1.34, reaching its lowest level since mid-May. Strong US employment data strengthened the dollar, while political uncertainty in the UK added pressure. Expectations remain for nearly two Bank of England rate increases this year, with the first likely in September.
Japanese Yen: The yen weakened beyond 160 per dollar, reviving intervention concerns. Strong US labor data strengthened expectations for future Fed tightening, while tensions in the Middle East supported demand for the dollar. Japan’s declining reserves and expectations of a Bank of Japan rate increase remained in focus.

Commodities

Gold Stabilizes After Its Steepest Retreat

Gold traded around $4,300 per ounce on Monday after losing nearly 5% last week and reaching a two-month low. Strong US jobs data reinforced expectations for higher US rates. Tensions in the Middle East and concerns over oil supply disruptions continued to support inflation risks, helping limit further losses.

Peace Efforts Face New Challenges

Brent crude climbed above $96 per barrel as renewed tensions in the Middle East fueled supply concerns. Missile exchanges between Iran and Israel and disruptions near the Strait of Hormuz supported prices. Although OPEC+ agreed to increase output quotas, regional tensions and fragile peace efforts kept oil prices supported.

Silver Steadies After a 10% Weekly Slide

Silver held near $68 per ounce after falling almost 10% last week to a two-month low. Strong US employment data weighed on precious metals by reinforcing expectations for higher US rates. Concerns over oil supplies and Middle East developments helped contain additional downside.

Fixed Income

US 10-Year Treasury Yield: The US 10-year Treasury yield rose to 4.57%, a two-week high, after May payrolls increased by 172,000 and unemployment remained at 4.3%. Markets increased the probability of a December Fed rate hike, with higher oil prices adding to inflation concerns.
UK 10-Year Gilt Yield: UK 10-year gilt yields remained below 4.9%. Lower oil prices and developments surrounding US-Iran negotiations limited upward pressure. Political developments and leadership speculation added uncertainty, while expectations for nearly two Bank of England rate hikes this year remained intact.
Japan 10-Year Government Bond Yield: Japan’s 10-year bond yield rose to around 2.7%, a one-week high, as strong US labor data pushed global yields higher and strengthened expectations for a Fed rate hike. Expectations of a Bank of Japan rate increase and resilient domestic data also supported yields.
Germany 10-Year Bund Yield: German 10-year Bund yields climbed to 3.04%, tracking higher US Treasury yields after strong US employment data. Expectations for an ECB rate increase next week provided additional support, though weaker Eurozone growth figures limited further gains.

Economic Data

US Unemployment Rate

US unemployment remained at 4.3% in May, matching forecasts. Employment increased by 149,000 while joblessness declined slightly. Labor force participation held at 61.8%, and the U-6 underemployment rate eased to 8.1%, pointing to modest improvement in labor market conditions.

US Job Openings

Job openings rose by 731,000 to 7.618 million in April, the highest level since late 2024 and above expectations. Professional and business services recorded the largest gains, while finance and insurance declined. Hiring and separations edged lower, with quits and layoffs largely unchanged.

Euro Area Inflation Rate

Eurozone inflation accelerated to 3.2% in May, the highest level since 2023 and well above the ECB’s 2% target. Energy prices led the increase, while services and industrial goods also recorded faster growth. Core inflation edged higher, highlighting broader price pressures.

China RatingDog Manufacturing PMI

China’s manufacturing PMI eased to 51.8 in May from April’s multi-year high but remained above expectations, signaling continued expansion. New orders and output growth moderated but stayed solid, supported by domestic demand. Export demand softened, employment edged lower, and supply delays persisted, while business confidence remained positive despite a slight decline.

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