Dollar Surges as US-Iran Tensions Fuel Hawkish Fed Bets

The US dollar strengthened on Monday to hover near a two-month high, driven by rising oil prices and expectations of a more hawkish Federal Reserve. The US-Iran standoff has pushed up oil prices, with Brent crude futures exceeding $106 per barrel.

Energy supply risks and robust fundamentals in the US have heightened inflation concerns, prompting traders to price in a more aggressive Federal Reserve policy tightening. 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 market's focus will turn to US data releases this week, including the PCE Index on Wednesday and non-farm payrolls on Friday. The Federal Reserve is expected to raise interest rates by year-end, with a 65% chance of a rate hike in October, according to CME Group's FedWatch tool.