Greenback near two-month high as US-Iran stalemate bolsters oil, Fed rate hike bets
The market focus is set to turn to American data releases
The US dollar reached a two-month high on Monday (Sep 28) as tensions between the United States and Iran drove up oil prices and Treasury yields, while traders anticipated a data-rich week to gauge the Federal Reserve's policy trajectory. The dollar index, which gauges the US currency against a basket of peers, remained stable at 101.16, but had still gained 1.7 per cent monthly, marking the most significant increase since June.
The euro declined to near parity with the US dollar at $1.1370, on track for a 2 per cent drop in September. The British pound held steady near $1.3249, but remained close to a three-month low of $1.3204. Oil prices surged more than 3 per cent, with Brent crude futures breaching the $108 per barrel mark after US President Donald Trump rejected an Iran peace deal.
Heightened concerns over inflation and strong US economic fundamentals have increased the odds of a more hawkish Federal Reserve, prompting traders to price in a more aggressive stance from the central bank. Roberto Cobo, head of Group of 10 FX strategy at BBVA, stated that the rise in oil prices is beneficial for the greenback due to its impact on inflation and the Fed's policy.
Market projections suggest a 70 per cent probability of a quarter-point interest rate increase from the Fed during the October meeting, with expectations of four such hikes within the next year. Analysts note that markets have already shifted towards a hawkish Fed scenario, meaning that even a slight letdown in upcoming data could cause profit-taking following the recent dollar rally.
Other economic indicators expected to be released during the week include Chinese Purchasing Managers' Index (PMI) figures on Wednesday, ahead of the Chinese National Day holidays, and eurozone inflation data on Friday. The Japanese yen showed a slight gain, rising as much as 0.4 per cent to 156.51 per dollar, following Japan's top currency diplomat's assurance that markets should consider Tokyo and Washington's recent statements on the yen as accurate.
Meanwhile, Japan's Finance Minister and US Treasury Secretary reaffirmed their commitment to strengthening economic cooperation to tackle the yen's weakness. Japan's service-sector inflation rose dramatically in August, its fastest pace in over two years, signaling growing price pressures and supporting arguments for earlier Bank of Japan rate hikes.
The Japanese yen strengthened by 0.2 per cent to 157.02 per dollar. The Australian dollar traded at $0.7011, and the New Zealand dollar was at $0.5658. The Reserve Bank of Australia is set to raise interest rates by 25 basis points to a near 15-year high of 4.6 per cent on Tuesday. On another front, China's offshore yuan marginally strengthened to 6.7159 per greenback, despite the lack of significant progress at the three-day summit between US President Donald Trump and Chinese President Xi Jinping.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
