Dollar Strengthens Amid US-Iran Tensions and Hawkish Fed Bets
The US dollar has strengthened to near a two-month high as tensions between the US and Iran continue to push up oil prices. The dollar index, which measures the value of the greenback against a basket of peers, is now at 101.15.
This is the highest level since July, with the dollar on track for a 1.7% gain in September, its best month since June. The euro and sterling are both down 0.1% against the dollar, trading near multi-month lows.
The price of oil has climbed over 1% today, with Brent crude futures trading above $106 per barrel. This increase is largely due to the ongoing conflict between the US and Iran, which has heightened energy supply risks and inflation concerns.
As a result, investors are pricing in a more hawkish Federal Reserve, leading to elevated long-end Treasury yields that support the dollar. According to Sim Moh Siong, FX strategist at OCBC, 'the greenback could overshoot in the near term if energy market tensions persist and inflation risks continue to build.'
The week ahead will bring a series of data releases from the US, including the PCE Index on Wednesday and non-farm payrolls on Friday. Markets are currently expecting these numbers to be consistent with further policy tightening.