Dollar Rallies Amid US-Iran Tensions and Hawkish Fed Bets

The US dollar is near a two-month high as the US-Iran stalemate pushes up oil prices and Treasury yields, leading to bets on a Federal Reserve rate hike. The dollar index, which measures the US currency against a basket of peers, was steady at 101.16 but on track for a 1.7 per cent monthly gain, its biggest since June.

Oil prices climbed over 3 per cent with Brent crude futures last trading above $108 a barrel after US President Donald Trump rejected a peace deal with Iran. Energy supply risks and robust fundamentals in the US economy have heightened inflation concerns, prompting traders to price in a more hawkish Federal Reserve.

The market focus is set to turn to US data releases, including the PCE Index on Wednesday and nonfarm payrolls on Friday, both expected to be consistent with further policy tightening. Markets currently see a 70 per cent chance of a quarter-point rate hike from the Fed at the October meeting.