• US Dollar Index gains momentum to around 101.30 in Tuesday’s early European session.
• Growing chances of US rate rises and optimism about the American economy support the DXY.
• Traders brace for the upcoming US June jobs report, which is due on Thursday.

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.30 during the early European trading hours on Tuesday. The DXY gathers strength and is heading for its biggest monthly gain in nearly a year on optimism over US economic growth and the prospect of Federal Reserve (Fed) interest rate hikes.

The Fed held its benchmark interest rate steady in a target range of 3.50% to 3.75% at its June policy meeting. The central bank’s update also removed a statement hinting that it was leaning towards lowering interest rates in the future.

A more hawkish turn at the Fed’s June meeting under new Fed Chair Kevin Warsh has led traders to increase bets on rate hikes this year, boosting the US Dollar across the board. Fed funds futures have priced in nearly a 63% chance of a rate hike by September, according to the CME FedWatch tool.

The US jobs report for June will take center stage later on Thursday. Three consecutive months of stronger-than-expected Nonfarm Payrolls (NFP) gains have supported the Fed’s hawkish shift.

Markets expect an increase of 110,000 jobs in June, and the Unemployment Rate is projected to hold steady at 4.3% during the same period. A turn in the labor market, however, could prompt a more dovish rethink of the monetary path, which would drag the DXY lower.

“The labor market appears to have accelerated,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The concerns that the doves had pointed to about labor markets slowing down seem to have passed.”

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