Dollar Holds Firm as Oil Prices Surge Amid US-Iran Tensions

The US dollar held steady near a two-month high as tensions between the US and Iran continued to push up oil prices, while investors await key economic data releases this week. The dollar index, which measures the US currency against a basket of peers, remained at 101.14 but was on track for its biggest monthly gain since June. Oil prices surged more than 3% on 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.

Market analysts believe energy supply risks and robust fundamentals in the US economy have heightened inflation concerns, prompting traders to price in a more hawkish Federal Reserve. Sim Moh Siong, FX strategist at OCBC, said the greenback could overshoot in the near term if energy market tensions persist and inflation risks continue to build.

Investors will be closely watching key data releases this week, including the PCE Index on Wednesday and nonfarm payrolls on Friday, both expected to support further policy tightening. Markets see a 65% chance of a quarter-point rate hike from the Fed at the October meeting, according to the CME FedWatch Tool.