Dollar Firm as US-Iran Tensions Lift Oil Prices and Hawkish Fed Bets Build
The US dollar remains firm near a two-month high as tensions between the US and Iran continue to drive up oil prices. The dollar index, which measures the US currency against a basket of peers, is steady at 101.14 but on track for a 1.7% gain this month, its largest monthly increase since June.
The euro has weakened to $1.1376, close to a two-month low against the dollar and poised for a 2% decline in September. The sterling is up slightly to $1.3260 but near a three-month low of $1.3204 reached last week.
Oil prices have surged over 3% with Brent crude futures above $107 per barrel after US President Donald Trump rejected a peace deal with Iran to resolve their conflict and reopen the Strait of Hormuz. Energy supply risks and strong fundamentals in the US economy have heightened inflation concerns, prompting traders to price in a more hawkish Federal Reserve.
FX strategist Sim Moh Siong at OCBC notes that 'the greenback could overshoot in the near term if energy market tensions persist and inflation risks continue to build.' The bank's base case remains for a moderate dollar rally into year-end, he adds.