Dollar Holds Gains as Oil Prices Rise Amid Middle East Conflict

The US dollar held near its highest levels of the week on Friday due to rising oil prices and bond yields, fueled by conflict in the Middle East. The US Dollar Index (USDX), which measures the currency against six peers, rose 0.4% the previous day and was trading slightly higher at 99.15.

The surge in dollar value came after data showed US producer prices rose in August as energy prices rebounded during the month, boosting bets on US rate hikes.

However, energy prices fell back on Friday, with Brent down 4% at $104 a barrel after climbing to its highest level since May on Thursday close to $110. Francesco Pesole, currency strategist at ING, said 'Developments in the Gulf leave the balance of risks skewed towards higher oil prices, while stress in bond markets is increasingly bleeding into risk assets.'

The release of US CPI data later in the day is expected to show consumer prices accelerated in August as the cost of gasoline rebounded. Markets are pricing a roughly 70% probability of a 25-basis-point hike on September 16.