The US dollar climbed to its highest level in eight weeks as stronger-than-expected economic data and escalating geopolitical tensions in the Middle East reinforced expectations that the Federal Reserve may maintain higher interest rates for longer.

Investor sentiment remained heavily focused on inflation risks after robust US labor market and services sector data signaled continued economic resilience. At the same time, rising tensions between the United States and Iran pushed oil prices higher, increasing concerns that elevated energy costs could keep inflation pressures persistent across global economies.

Strong US Data Boosts Dollar Demand

The US Dollar Index (USDX) advanced to 99.54, marking its strongest level since April 2026. The move was driven by a combination of positive economic indicators and renewed safe-haven demand.

US ADP Employment Change rose by 122,000 in May, surpassing market expectations of 117,000 and indicating that the labor market remains resilient despite restrictive monetary conditions. Meanwhile, ISM Services PMI climbed to 54.5 from 53.6, highlighting continued expansion in the services sector and supporting the view that economic activity remains healthy.

These developments reinforced market expectations that the Federal Reserve may delay any potential interest rate cuts, with some analysts even considering the possibility of additional tightening if inflation remains elevated.

Oil Prices Surge Amid Growing Supply Concerns

Crude oil prices extended gains for a third consecutive session as geopolitical tensions intensified across the Middle East. Renewed military exchanges between the United States and Iran raised concerns over potential disruptions to global energy supplies.

WTI crude oil rallied toward the $97 per barrel mark after US crude inventories declined by nearly 8 million barrels, significantly exceeding market expectations. The larger-than-expected inventory draw highlighted tightening supply conditions and amplified concerns that any disruption around the Strait of Hormuz could have a substantial impact on global oil flows.

With approximately one-fifth of global oil shipments passing through the region, traders continue to closely monitor developments that could further impact energy markets and inflation expectations worldwide.

Gold Struggles Despite Safe-Haven Appeal

Traditionally viewed as a safe-haven asset during periods of uncertainty, gold faced renewed selling pressure despite ongoing geopolitical risks.

Gold prices declined as investors shifted toward the US dollar, which benefited from both safe-haven demand and rising interest rate expectations. Higher Treasury yields also reduced the appeal of non-yielding assets such as gold.

The precious metal fell toward the $4,425 region before stabilizing near $4,450. Market participants remain cautious ahead of upcoming US Nonfarm Payrolls data, which could provide additional clues regarding the Federal Reserve's policy outlook.

Unless geopolitical risks escalate significantly, gold may continue to face headwinds from a stronger dollar and elevated interest rate expectations.

USD/JPY Approaches Critical 160 Level

In the currency markets, USD/JPY once again tested the psychologically important 160.00 level as widening yield differentials continued to favor the US dollar.

Although Japanese authorities reiterated their readiness to intervene against excessive currency weakness, market participants remain focused on the gap between US and Japanese monetary policy. While the Bank of Japan has signaled the possibility of further policy normalization, traders believe the pace of tightening remains insufficient to significantly narrow the yield advantage enjoyed by the US dollar.

As a result, USD/JPY remains supported despite intervention warnings from Japanese officials.

Sterling Faces Pressure from Economic Slowdown

The British pound remained under pressure as weaker economic data highlighted growing challenges for the UK economy.

UK Services PMI slipped into contraction territory, raising concerns that economic growth may be slowing. At the same time, rising oil prices have increased fears of renewed inflation pressures, creating a difficult environment for policymakers.

Although Bank of England officials continue to maintain a relatively hawkish stance, traders remain concerned that persistent inflation combined with weakening growth could increase the risk of stagflation in the UK economy.

Market Outlook

Looking ahead, traders will closely monitor remarks from Reserve Bank of Australia Governor Michele Bullock and Bank of England Governor Andrew Bailey for additional guidance on future monetary policy.

However, the primary focus remains on upcoming US labor market data and geopolitical developments in the Middle East. Stronger employment figures could further strengthen the dollar and reinforce higher-for-longer interest rate expectations, while any escalation in regional tensions may continue to support oil prices and increase global inflation concerns.

For now, the US dollar remains firmly supported by resilient economic data, rising Treasury yields, and ongoing geopolitical uncertainty, keeping financial markets highly sensitive to incoming economic and political developments.