Dollar Gains Momentum as Energy Prices Rise and Yields Climb

The US dollar has regained its footing after rebounding from range lows yesterday at 99.40, signaling that it's not yet ready to make a sustained break lower. Two key factors are providing near-term support: higher energy prices and rising long-end bond yields. These developments could potentially put a September rate hike by the Federal Reserve back on the agenda.

Energy prices have been creeping higher due to news that Washington is unlikely to extend the 60-day ceasefire with Iran, which has sparked concerns over oil supply. This increase in energy prices is a positive for the dollar, as it makes it more challenging for the Fed to ignore inflationary pressures and maintain its accommodative stance.

Regarding long-end yields, ING's Rates Strategy team notes that 30-year US Treasury swap spreads have not widened significantly, suggesting that fiscal concerns are not driving this move. Instead, the heavy investment-grade issuance from US hyper-scalers is putting pressure on the market. With US IG issuance reaching a record $145 billion in August, investors are taking on more risk, which could lead to a further rise in yields and put downward pressure on emerging market currencies.

Today's key data releases include July non-farm payrolls, industrial production, and housing data. A strong performance in the jobs numbers could lift short-dated US rates and support the dollar. Expect the DXY index to remain within a 99.40-100.00 trading range.