Dollar stays near 18-month high as Mideast conflict, inflation data in focus

The U.S. dollar maintained its near 18-month high in early Asian trading on Monday as an escalating Middle East conflict kept investors cautious ahead of crucial U.S. inflation data this week. Oil prices fluctuated, with Yemen's Iran-backed Houthis increasing attacks on Saudi Arabia and two tankers being targeted over the weekend.

Brent crude futures dropped 1% to $103.55 per barrel in Asian hours. The dollar index, measuring the greenback's strength against six currencies, was slightly down at 102.14 but near its 18-month peak. Trading was limited to a narrow range due to reduced liquidity in the region. Analysts from Commonwealth Bank of Australia predict the Houthis will continue targeting Saudi energy assets, supporting oil prices and the dollar.

However, Iran's response to a US peace proposal remains uncertain, with no breakthrough expected this week. Against the yen, the dollar fell 0.14% to 158.160 yen, while the Australian dollar and New Zealand dollar were nearly flat at $0.6988 and $0.5614, respectively. The market's attention will shift to Wednesday's U.S. consumer price index report, one of the final major economic releases before the Federal Reserve's October meeting on interest rates.

The Fed raised rates last month for the first time since 2023, aiming to curb inflation, with markets closely monitoring economic data to determine potential further rate adjustments. Traders anticipate an 81% chance of the Fed holding steady this month, up from 51% a month prior, according to the CME FedWatch tool. While the dollar's rally may take a breather in the near term, Barclays analysts suggest a possible pullback, citing tightened global financial conditions due to sharp moves in bond markets.

However, the euro gained nearly 0.1% to $1.121, as investor concerns about France's fiscal health ahead of the 2027 presidential election weighed on the common currency. The British pound remained steady at $1.3245, and the U.S. dollar was flat against the Chinese yuan in offshore trade. Bitcoin increased by 0.2% to $83,788.50, while ether rose marginally by 0.15% to $2,540.08.