Dollar Strengthens Amid Rising Oil Prices and Hawkish Fed Bets

The US dollar continues to firm up, reaching near a two-month high on Monday as the US-Iran tensions drive oil prices higher. The dollar index, which measures the US currency against a basket of peers, is at 101.15 and on track for a 1.7% gain in September, its best month since June.

Oil prices climbed more than 1% on Monday with Brent crude futures last above $106 a 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 robust fundamentals in the US have heightened inflation concerns, prompting traders to price in a more hawkish Federal Reserve.

The market's focus is set to turn to US data releases as the week unfolds, with the PCE Index on Wednesday and non-farm payrolls on Friday both expected to be consistent with further policy tightening. Markets are seeing a 65% chance of a rate hike from the Fed when the central bank meets next at the end of October.