Dollar Surges as Oil Prices Rebound and Euro Faces German Politics

The US dollar has resumed its advance against other major currencies, driven by rising oil prices and expectations of a tighter monetary policy from the Federal Reserve. Brent crude prices rebounded from their longest slide since July, increasing the likelihood that the Fed will tighten monetary policy.

The greenback is receiving support from the economy's continued healthy growth and capital outflows from Europe, linked to high fuel prices and escalating political risks in Germany and France. The euro is facing pressure due to rising political risks in Germany, including a possible resignation of Chancellor Friedrich Merz following the CDU's defeat in regional elections.

Supply disruptions from the Gulf states were less severe than expected, with Saudi Arabia increasing exports through the Strait of Hormuz to an average of 2.9 million barrels per day over the last six days. However, investors remain cautious about a breakthrough between the US and Iran following their dialogue at the UN summit.

The market is pricing in a weighted-average interest rate of 4.69% as of September 2027, up from 45% just a week earlier, which has contributed to the dollar's rise during this period.