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Dollar holds near two-month high as oil, data bolster Fed rate bets
The U.S. dollar held near two-month highs on Monday, heading for its strongest monthly gain since June as surging oil prices and resilient economic data bolstered expectations for higher Federal Reserve interest rates ahead of a key week for inflation and labor-market data.
The dollar index, which measures the greenback against a basket of six rival currencies, rose 0.2% to 100.91. The index is on track for a 1.7% advance in September, underpinned by a sharp rise in long-dated U.S. Treasury yields and an intensifying energy shock.
Brent crude climbed over 1% past $106 a barrel after U.S. President Donald Trump rejected a ceasefire proposal aimed at reopening the Strait of Hormuz, maintaining upward pressure on global energy costs and threatening to entrench cost-push inflation across major economies.
Transatlantic pressure weighs on Euro and Pound
Across European trading bourses, major counter-currencies struggled to build momentum as widening interest rate differentials and elevated energy import costs continue to favor the dollar.
The euro fell 0.23% to $1.1300, pulling back as currency desks braced for preliminary Eurozone inflation data due later in the week. Sterling was nearly flat at $1.3265, languishing as investors weighed sticky UK inflation against slowing economic momentum ahead of central bank speeches.
Yen slides back toward 158 despite Tokyo-Washington warning
The Japanese yen slipped 0.3% to 157.70 per dollar, giving back a portion of Friday’s gains when Japanese Finance Minister Satsuki Katayama revealed that President Trump expressed explicit concern over yen weakness during a recent bilateral summit.
Despite Katayama and U.S. Treasury Secretary Scott Bessent reaffirming a coordinated commitment to counter disorderly currency swings, market participants continue to test Tokyo’s resolve. The yen remains constrained by a massive interest-rate gap following the Bank of Japan’s September policy decision, which traders viewed as insufficient to narrow the yield disadvantage against the greenback.
Australian dollar steady ahead of expected RBA rate hike
The Australian dollar traded flat near $0.7000 as foreign exchange desks positioned for the Reserve Bank of Australia’s policy decision on Tuesday.
Money markets have priced in a high probability of a 25-basis-point increase in the cash rate to 4.6% - a nearly 15-year peak - following hawkish signals from RBA Governor Michele Bullock regarding energy-driven inflation risks.
Looking ahead, global currency markets face a heavy catalyst slate. Investors are focused on Wednesday’s U.S. Personal Consumption Expenditures (PCE) price index - the Fed’s preferred inflation gauge - alongside Friday’s September nonfarm payrolls report.
CME FedWatch data indicates traders are discounting a 65% probability of another quarter-point Fed rate increase in October, keeping the greenback in a commanding position across the board.
FX desks were also cautious ahead of a dense lineup of central bank speakers, spearheaded by ECB President Christine Lagarde and a slate of Fed officials including Michelle Bowman, Lisa Cook, and Tom Barkin. Any fresh hawkish pushback from U.S. policymakers threatens to extend the dollar’s monthly rally, while euro traders will watch whether Lagarde flags lingering energy-driven inflation risks ahead of this week’s Eurozone CPI figures.
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