US dollar ticks up as oil prices climb, Fed rate hike chances firm

Oil prices have surged to a four-month high, reaching over US$105 per barrel. This increase has driven up Treasury yields, bolstering the US dollar and prompting expectations of a Federal Reserve interest rate hike this week. The 10-year US Treasury yields hit their highest level since 2007, climbing 4.1 basis points to 5.004 percent.

The heightened energy-related inflation pressures stem from a stronger-than-anticipated US jobs report and rising consumer prices in August, reinforcing the likelihood of a Fed rate increase on Wednesday. Analysts view this as a near certainty, with the chances of a hike at over 92 percent according to CME's FedWatch tool. "It's quite likely they will hike at this point," commented Francesco Pesole, an FX strategist at ING.

"If they decide to hold rates, it could cause turmoil." The euro dipped to a one-month low against the dollar, while the British pound weakened ahead of a Bank of England decision. The Japanese yen also retreated, setting the greenback up roughly 0.3 percent at 154.8 ahead of a potential Bank of Japan rate hike. Market sentiment on the yen is shifting, with speculators adopting a net long position for the first time since February.

The New Zealand and Australian dollars saw slight declines. The renewed inflation pressures come after stronger-than-expected US jobs data and higher August consumer prices, increasing confidence in the Fed raising rates on Wednesday. Economists surveyed by Reuters anticipate at least one more interest rate hike by the end of March, reversing a cautious no-change consensus before Friday's official inflation figures.