Dollar holds firm as US-Iran tensions lift oil, hawkish Fed bets build
TLT•The dollar index eased to 101.12 but remained near a two-month high as US-Iran tensions pushed oil above $107 a barrel and markets priced a 65% chance of a Fed rate hike in October.
1. Dollar and oil
The dollar was on the defensive on Monday but remained near a two-month high as the US-Iran standoff pushed up oil prices and bond yields. The dollar index eased to 101.12, though it was set for a 1.7% gain in September, its best monthly rise since June. Brent crude was above $107 a barrel after President Donald Trump rejected a peace deal with Iran to resolve their conflict and reopen the Strait of Hormuz.
2. Fed rate expectations
Energy supply risks and robust US fundamentals heightened inflation concerns, prompting traders to price in a more hawkish Federal Reserve. Markets saw a 65% chance of a Fed rate hike at its next meeting at the end of October. The PCE index is due Wednesday and non-farm payrolls on Friday; both are expected to be consistent with further policy tightening.
3. Other currencies
The euro was slightly weaker at $1.1386, while the yen fell 0.3% to 157.7 per dollar. The Australian dollar traded at $0.70125, with the Reserve Bank of Australia expected to raise rates by 25 basis points to 4.60% on Tuesday, likely its final increase in the tightening cycle.
