Dollar holds near two-month peak as yields rise, Fed data looms

The dollar index briefly reached a two-month peak at 101.2 on Tuesday, poised for an 1.8% gain this month, its strongest performance since June. This rise was driven by volatile oil prices and a sharp increase in Treasury yields, although gains were capped as traders awaited key US economic data later in the week for hints on the Federal Reserve's rate trajectory.

Meanwhile, the euro slipped to its weakest level in three months against the US dollar, while the British pound held steady near a three-month low. The euro traded at US$1.1367, whereas the pound remained at US$1.3248. Oil prices rebounded, with Brent crude futures nearing US$106 a barrel as markets questioned the effectiveness of renewed talks to resolve the Iran conflict, following President Donald Trump's rejection of Iran's ceasefire offer.

Simultaneously, a surge in US Treasury sales pushed yields to record highs, with the 10-year benchmark hitting its peak since 2007 and the 30-year at its highest since 2004. The two-year yield also climbed to its highest level in over two years, nearing 5%. The dollar's limited gains were attributed to investors waiting for forthcoming US data releases, including the PCE price index on Wednesday and nonfarm payrolls on Friday, all set to reinforce the likelihood of additional Fed rate hikes.

With a more than 70% chance of a rate increase at the end of October, according to CME Group's FedWatch tool, markets are closely monitoring the US economic data to better gauge the Fed's path.