The US dollar held near a two-month high at 101.15 on Monday, driven higher by rising oil prices amid US-Iran tensions and strong domestic economic fundamentals that have traders pricing in a more hawkish Federal Reserve. According to Reuters reporting from Hong Kong, investors are closely watching a packed data calendar, including the US PCE Index and non-farm payrolls, for further clues on inflation and future monetary policy.
US-Iran Standoff Pushes Oil Prices Past $106
Crude markets faced immediate upward pressure after US President Donald Trump rejected a peace deal with Iran aimed at resolving their ongoing conflict and reopening the Strait of Hormuz. Brent crude futures climbed more than 1% to trade above $106 a barrel.
Sim Moh Siong, an FX strategist at OCBC, noted that energy market supply risks and persistent inflation threats could cause the greenback to overshoot in the near term. The bank’s base case points to a moderate USD rally running into the end of the year, supported by elevated long-end Treasury yields.
Global Currencies React to Central Bank Expectations and Bilateral Talks
Major currencies softened against the dollar as the greenback tracked toward a 1.7% gain for September, marking its best month since June. The euro and sterling both dropped 0.1% to trade near multi-month lows at $1.1379 and $1.3232, respectively.
Meanwhile, the Japanese yen weakened 0.3% to 157.7 per dollar. The currency had experienced a brief lift after Japan’s Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent held a telephone call to reaffirm that yen undervaluation remains a shared concern requiring cooperative management.
In the Pacific, the Australian dollar traded down slightly at $0.7017 ahead of a widely anticipated Reserve Bank of Australia meeting. The RBA is expected to raise interest rates by 25 basis points to a near 15-year high of 4.60%, which analysts view as the final hike in the current tightening cycle. The New Zealand dollar held flat at $0.5661.
Further compounding regional currency pressures, the offshore yuan weakened to 6.7235 per dollar following a three-day summit between Trump and Chinese President Xi Jinping that concluded without major public breakthroughs on key trade and diplomatic issues.
Upcoming Economic Data Catalysts
Market attention now shifts toward high-impact macroeconomic reports. The US PCE Index is scheduled for release on Wednesday, followed by non-farm payroll figures on Friday. Both reports are expected by analysts to align with continued policy tightening by the central bank.
Current pricing from CME Group’s FedWatch tool indicates a 65% probability that the Fed will enact a rate hike at its upcoming policy meeting at the end of October. International data releases will also populate the weekly schedule, including China’s PMIs on Wednesday ahead of the National Day holidays, alongside consumer price index reports for Japan and the euro zone on Friday.
Market Background and Data Highlights
Key Figures at a Glance
- Dollar Index: 101.15 (on track for a 1.7% monthly gain)
- Brent Crude Futures: Above $106 a barrel
- USD/JPY: 157.7
- EUR/USD: $1.1379
- GBP/USD: $1.3232
- AUD/USD: $0.7017
- Fed October Rate Hike Probability: 65% (per CME Group FedWatch)
Frequently Asked Questions About Currency and Commodity Markets
Why are oil prices climbing?
Oil prices surpassed $106 a barrel after US President Donald Trump rejected a peace deal with Iran, keeping the Strait of Hormuz conflict active and intensifying supply risk concerns.
What is driving the US dollar’s strength?
The dollar is supported by rising energy prices, strong US economic fundamentals, elevated long-end Treasury yields, and rising expectations of a more hawkish Federal Reserve.
What are the key data releases traders are watching this week?
Markets are focusing on the US PCE Index on Wednesday, non-farm payrolls on Friday, China’s PMIs, and upcoming consumer price index data from both Japan and the euro zone.
What is the expected move from the Reserve Bank of Australia?
The RBA is expected to increase interest rates by 25 basis points to 4.60%, which market participants view as the final rate increase in the current tightening cycle.
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