Dollar Erases Early Gains as Crude Oil and T-note Yields Move Lower

The dollar fell from a two-week high and is now down by 0.11%. It lost ground after the initial rally triggered by escalating US-Iran tensions boosted crude oil prices and pushed 10-year Treasury yields to a 2.75-year high. The US August ADP employment change came in at +38,000, slightly below expectations of +47,000. US July factory orders rose +0.9% month-over-month, exceeding forecasts of +0.7% month-over-month.

July factory orders excluding transportation improved by +0.6% month-over-month, above expectations of +0.4% month-over-month. WTI crude oil initially climbed to a six-week high, lifting the dollar as the conflict between the US and Iran intensified. However, crude prices retreated overnight, easing supply concerns and prompting a dollar retreat.

The markets now price a 63% chance of a 25 basis point rate hike at the next Federal Open Market Committee meeting on September 15-16. The euro dipped to a two-week low and fell by 0.02% after a weaker-than-expected US employment report weighed on the currency. However, the euro's decline is limited due to comments from ECB Governing Council member and Bundesbank President Joachim Nagel, who signaled a potential interest rate hike later this month.

The 10-year German Bund yield hit a 15-year high at 3.395% today, bolstering the euro's interest rate differentials. The BOJ's Board Member Hajime Takata hinted at a possible rate hike beyond expectations this month, and lower crude oil prices are favorable for the Japanese economy and yen.