Dollar steadies near two-month high as US-Iran stalemate lifts oil, Fed rate hike bets build
SPY•The dollar held near a two-month high as US-Iran tensions pushed oil prices and Treasury yields higher. Markets priced a 65% chance of a quarter-point Fed rate hike in October.
1. Dollar supported by oil
The dollar index was little changed at 101.14 and was on track for a 1.7% gain in September, its biggest monthly rise since June. Oil climbed more than 3% on Monday, with Brent above $107 a barrel, after President Donald Trump rejected a peace deal with Iran to resolve the conflict and reopen the Strait of Hormuz.
2. Investors await US data
Energy supply risks, inflation concerns and rising long-term Treasury yields supported the dollar and lifted expectations for tighter Fed policy. Markets saw a 65% chance of a quarter-point rate increase at the October meeting; US PCE data on Wednesday and nonfarm payrolls on Friday were expected to be consistent with further tightening.
3. Yen gains after warning
The yen strengthened to 156.75 per dollar after Japan's top currency diplomat said markets should take at face value the "very clear" message Tokyo and Washington delivered last week on the yen. August service-sector inflation in Japan rose at its fastest annual pace in more than two years, while the Reserve Bank of Australia was expected to raise its rate by 25 basis points to 4.60% on Tuesday.
