Dollar Soars on Oil Price Surge and Hawkish Fed Expectations

The US dollar surged across the board on Monday as tensions in the Middle East drove up oil prices and investors sought safe-haven assets, ahead of the Federal Reserve's expected interest rate hike.

Oil prices jumped nearly 3% to $108 a barrel, with Brent crude rising after Houthi strikes on Saudi Arabia and attacks on ships in the region. The U.S. dollar index, which tracks the currency against six major peers, rose almost 0.6% to its highest level since September 2.

Currency strategist Francesco Pesole at ING noted that 'gulf developments remain concerning, and some AI-related headlines are further weighing on equities, an environment where the dollar should remain supported.'

The Federal Reserve's decision on interest rates looms large this week, with money markets indicating a roughly 90% chance of a rate hike. Analysts at Scotiabank warn that an unchanged decision would be 'a shock for markets and a clear negative for the USD,' while a 'dovish' hike could also weigh on the currency.