Dollar Surges on Oil Prices and Rate Hike Expectations

The dollar strengthened across various currencies on Tuesday as rising oil prices lifted Treasury yields and solidified expectations that the Federal Reserve will increase interest rates this week.

U.S. 10-year Treasury yields reached levels not seen since 2007, surging to a peak of 5.0266% and settling just below 5%. This comes after investors anticipated a potential rate hike by the Federal Reserve in response to stubborn inflation.

The recent energy-induced inflation pressures follow a stronger-than-expected U.S. jobs report and an increase in consumer prices for August, further solidifying market conviction that the Fed will raise rates on Wednesday.

Markets now see a Fed hike as nearly certain, with CME's FedWatch tool pricing in over 92% chance of an interest-rate increase. However, investors should remain cautious due to potential surprises, according to Juan Perez, senior director of trading at Monex USA.