Greenback near two-month high as US-Iran stalemate bolsters oil, Fed rate hike bets 

[LONDON] The US dollar was steady near a two-month high on Monday (Sep 28) as the US-Iran stand-off pushed up oil prices and US Treasury yields, while investors looked ahead to a data-packed week for further clues about the path of central bank policy.

The dollar index, which measures the US currency against a basket of peers, was little changed at 101.16, but was still set for a 1.7 per cent monthly gain, its biggest since June.

The euro was at US$1.1370, hovering near a two-month low against the greenback and on course for a 2 per cent decline in September. Sterling was little changed at US$1.3249, but remained close to a three-month low of US$1.3204 hit last week.

Oil prices climbed more than 3 per cent with Brent crude futures last above US$108 a barrel, after US President Donald Trump rejected a peace deal with Iran.

Energy supply risks and robust fundamentals in the US economy have heightened inflation concerns and prompted traders to price in a more hawkish US Federal Reserve, while a relentless rise in long-end Treasury yields also supported the greenback.

“The rise in oil prices is dollar-positive mainly through the inflation and Fed channel,” said Roberto Cobo, head of Group of 10 FX strategy at BBVA.

The market focus is set to turn to US data releases, with the personal consumption expenditures price index on Wednesday and non-farm payrolls on Friday expected to be consistent with further policy tightening.

Currently, markets anticipate a 70 per cent chance of a quarter-point rate hike from the Fed at the October meeting, LSEG data showed, after the central bank raised its interest rate at the September meeting.

Traders are almost fully pricing in four quarter-point hikes in the next 12 months.

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“Markets have already moved significantly toward a hawkish Fed scenario,” said BBVA’s Cobo. “This creates asymmetry for the dollar, as another strong set of data would reinforce the case for further Fed tightening, which is largely priced in, but even a modest disappointment could trigger profit-taking following the dollar’s recent rally.”

Other data set to be released during the week include China purchasing managers’ index on Wednesday ahead of the week-long National Day holidays, and eurozone inflation data on Friday.

The yen rose as much as 0.4 per cent to 156.51 per dollar, after Japan’s top currency diplomat Atsushi Mimura said on Monday that markets should take at face value the “very clear” message Tokyo and Washington delivered last week on the yen.

Japan’s Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent reaffirmed that the two countries intend to strengthen cooperation to address yen weakness.

Data on Monday showed Japan’s service-sector inflation rose in August at the fastest annual pace in more than two years, highlighting mounting price pressures and bolstering the case for faster rate hikes from the Bank of Japan.

Japan’s yen was last 0.2 per cent stronger at 157.02 per dollar.

The Australian dollar fetched US$0.7011 and the New Zealand dollar was at US$0.5658. The Reserve Bank of Australia is expected to raise interest rates by 25 basis points to a near 15-year high of 4.6 per cent on Tuesday.

Elsewhere, China’s offshore renminbi strengthened slightly to 6.7159 against the greenback, after Trump and Chinese President Xi Jinping’s three-day summit did not yield any big public breakthroughs on a host of contentious issues. REUTERS