Dollar holds near two-month high as oil and Fed bets build
The dollar held near a two-month high on Monday as the US-Iran standoff kept oil prices elevated and investors looked ahead to a data-heavy week for clues on inflation and central bank policy. The dollar index, which measures the US currency against a basket of peers, was a touch higher at 101.15 and on track for a 1.7% gain in September, its best month since June.
Brent crude futures rose more than 1% on Monday and were 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. Energy supply risks and robust US fundamentals have heightened inflation concerns and prompted traders to price in a more hawkish Federal Reserve, while elevated long-end Treasury yields also supported the dollar.
"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. The bank's base case remains for a moderate dollar rally into year-end, he added.
Attention is expected to turn to US data releases later in the week, with the PCE Index due on Wednesday and non-farm payrolls on Friday, both of which the market expects to be consistent with further policy tightening. Markets were pricing a 65% chance of a rate hike at the Fed's next meeting at the end of October, according to CME Group's FedWatch tool. Other releases include China PMIs on Wednesday, ahead of the week-long National Day holidays, and Japanese and euro zone CPIs on Friday.
The euro and sterling were both 0.1% weaker against the dollar at $1.1379 and $1.3232 respectively, hovering near multi-month lows. The yen was last down 0.3% at 157.7 per dollar, having gained on Friday after Japan's Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent held a call and reaffirmed that yen undervaluation is a matter of concern and that the two nations intend to strengthen cooperation. The Australian dollar fetched $0.7017, down 0.07%, with the Reserve Bank of Australia expected to raise interest rates by 25 basis points to a near 15-year high of 4.60% on Tuesday in what is expected to be the final increase of its tightening cycle, while the kiwi traded flat at $0.5661. Offshore yuan weakened to 6.7235 per dollar after a three-day summit between Trump and Chinese President Xi Jinping did not yield any big public breakthroughs.
