The dollar held near a two-month high on Monday as the US-Iran standoff pushed oil prices and bond yields higher, feeding hawkish Fed bets. The euro and sterling both hovered near multi-month lows against the greenback, while traders looked to a data-heavy week for direction on inflation and rate policy.
Oil-driven tensions keep the dollar supported
The dollar stayed on the defensive Monday but held near a two-month high, as the US-Iran standoff continued to push up oil prices and bond yields. Investors are now looking ahead to a data-packed week for clues on inflation and central-bank policy.
Oil prices climbed more than 3% Monday, with Brent crude futures last above $107 a barrel, after President Donald Trump rejected a peace deal with Iran to resolve their conflict and reopen 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 a relentless rise in long-end Treasury yields also supported the dollar.
According to Reuters, Sim Moh Siong, FX strategist at OCBC, said: "The greenback could overshoot in the near term if energy market tensions persist". The bank's base case remains for a moderate dollar rally into year-end, he added.
Euro and sterling near multi-month lows
The euro was a shade weaker at $1.1386, hovering near two-month lows against the dollar and on course for a 2% decline in September. Sterling held steady at $1.3247, close to a three-month low, after Bank of England Governor Andrew Bailey reiterated a rate hike warning.
The dollar index eased slightly to 101.12 but was still set for a 1.7% gain this month, its best since June. Markets are seeing a 65% chance of a rate hike from the Fed at its end-October meeting, according to CME Group's FedWatch tool. The PCE Index is due Wednesday and non-farm payrolls Friday, both expected to be consistent with further policy tightening.
Yen slips as Japan and US pledge cooperation
The yen was last down 0.3% at 157.7 per dollar, trimming gains from Friday, after Japan's Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent reaffirmed that the two nations intend to strengthen cooperation to address yen weakness. Separately, data Monday showed Japan's service-sector inflation rose in August at its fastest annual pace in more than two years, bolstering the case for faster Bank of Japan rate hikes.
The Australian dollar fetched $0.70125 and the kiwi strengthened 0.1% to $0.5670. That comes ahead of a Reserve Bank of Australia meeting Tuesday, where the RBA is expected to raise rates by 25 basis points to a near 15-year high of 4.60% — likely its final hike of the cycle.
Source: Investing.com
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