Dollar Holds Near Two-Month High as Oil, Fed Bets Lift Greenback
The dollar stayed near a two-month peak as US-Iran tensions lifted oil and traders priced in a more hawkish Fed, with key US data due this week.
The dollar held close to a two-month high on Monday, supported by rising oil prices amid the continuing US-Iran standoff and by expectations that the Federal Reserve will keep tightening policy.
The dollar index, which tracks the US currency against a basket of peers, edged up to 101.15 and was on course for a 1.7% gain in September — its strongest month since June.
Both the euro and sterling slipped 0.1% against the dollar, trading at $1.1379 and $1.3232 respectively, near multi-month lows.
Oil prices rose more than 1%, with Brent crude futures last above $106 a barrel, after US President Donald Trump rejected a peace deal with Iran aimed at resolving their conflict and reopening the Strait of Hormuz. The resulting supply risks, combined with solid US fundamentals, have sharpened inflation concerns and led traders to bet on a more hawkish Fed. Elevated long-end Treasury yields also lent the dollar support.
"The greenback could overshoot in the near term if energy market tensions persist and inflation risks continue to build," said Sim Moh Siong, FX strategist at OCBC, adding that the bank's base case remains a moderate dollar rally into year-end.
Attention now turns to a busy US data calendar. The PCE Index is due on Wednesday and non-farm payrolls on Friday, both expected to be consistent with further policy tightening. Markets currently assign a 65% probability to a Fed rate hike at its end-October meeting, according to CME Group's FedWatch tool.
Other releases this week include China PMIs on Wednesday, ahead of the week-long National Day holidays, and Japan and euro zone CPI figures on Friday.
The yen weakened 0.3% to 157.7 per dollar, giving back some of Friday's gains. Those came after Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent held a call and reaffirmed that yen undervaluation is a concern, pledging closer cooperation between the two nations.
The Australian dollar traded at $0.7017, down 0.07%, while the New Zealand dollar was flat at $0.5661. The Reserve Bank of Australia is expected to raise rates by 25 basis points to a near 15-year high of 4.60% on Tuesday, in what is anticipated to be the final increase of its tightening cycle.
Elsewhere, the offshore yuan weakened to 6.7235 per dollar after a three-day summit between Trump and Chinese President Xi Jinping produced no major public breakthroughs on several contentious issues.