Fed Rate Hike Bets Rise as US-Iran Tensions Escalate Oil Prices

Global markets are cautious ahead of key economic indicators and rate hike decisions from major central banks. The recent escalation between the US and Iran has pushed oil prices higher, adding to concerns about persistent inflation.

Brent oil futures rose above $90 a barrel after US forces struck Iranian launchers on Larak Island, prompting retaliatory attacks by Iran. This development lifted the probability of a September Fed rate increase to 57%, sending short-term Treasury yields sharply higher and flattening the yield curve.

Markets are waiting for key economic indicators, including the US August payrolls report and consumer price data due on September 11. These numbers will determine whether the Fed moves as early as next month. Economists expect payrolls to increase by 58,000 after July's shock decline of 23,000.

Elsewhere, Japanese bonds followed Friday's sell-off in Treasuries as 10-year yields again hit their highest since 1996. The euro was a shade firmer at $1.1596, while gold slipped 0.3% to $4,437 an ounce after shedding 3.2% on Friday.