Dollar Rises with Oil as Inflation Fears Mount

The US dollar has been rising in tandem with oil prices, with Brent crude rebounding from its longest slide since July. The greenback's advance is supported by several factors, including the economy's continued healthy growth and capital outflows from Europe due to high fuel prices and escalating political risks in Germany and France.

Rumors of a resumption of operations on the East-West pipeline, increased Saudi Arabian exports via the Strait of Hormuz, and a meeting between US and Iranian presidents at the UN summit contributed to Brent's price drop over the previous four consecutive trading sessions.

However, the emergence of political efforts has slightly bolstered investors' hopes for an end to the conflict in the Middle East and normalization of fuel supplies. Supply disruptions from Gulf states were indeed less severe than expected, with Saudi Arabia increasing exports through the Strait of Hormuz to 2.9 million barrels per day over the last six days, up from 700,000 barrels per day in August.

The US dollar's rise is also linked to diesel prices in the US hitting record highs, drawing attention and posing a risk of accelerating inflation and fueling expectations of an aggressive tightening of the Fed's monetary policy. The probability of two further rate rises by the end of the year has risen to 45%, up from 29% a week earlier.

Additionally, political risks in Germany are weighing on the euro, with rumors of Friedrich Merz's resignation as Chancellor overshadowing an upward revision of German GDP growth forecasts. In France, talk of a budget crisis is growing louder due to unsustainably high public debt and a substantial budget deficit.