The US dollar strengthened against most major currencies on Monday as renewed fighting between the US and Iran heightened inflation concerns and reinforced expectations that central banks could keep interest rates higher for longer.
The greenback rose 0.1% against the Japanese yen to 161.92, while the euro slipped 0.1% to US$1.1403 and the British pound eased 0.1% to US$1.3383. The Australian dollar and New Zealand dollar also fell 0.1% to US$0.6942 and US$0.5757 respectively.
The gains came after US and Iranian forces exchanged missile and drone attacks over the weekend, with Tehran targeting US facilities across Gulf states and announcing it had once again closed the Strait of Hormuz, a key route for global oil shipments.
The renewed conflict also pushed oil prices higher, with Brent crude climbing 3.3% to US$78.49 a barrel in early Asian trading.
Tony Sycamore, market analyst at IG, said the latest escalation had boosted the US dollar alongside rising oil prices.
“After the flare-up into the end of last week which continued over the weekend, the dollar has responded, and the crude oil price has been the driver,” he said.
“This reinflames concerns that if the energy prices rise from here, we could start to see rate hikes pulled forward.”
Market expectations for tighter US monetary policy also strengthened. CME Group’s FedWatch Tool showed traders were pricing a 52.1% probability of two or more US Federal Reserve rate hikes by December, compared with 47.6% on Friday.
The US Dollar Index, which tracks the greenback against a basket of six major currencies, stood at 101.07 after touching its highest level since July 8.
Investors are also looking ahead to a series of US economic events this week, including consumer price index data on Tuesday, producer price index figures on Wednesday and testimony by Federal Reserve Chair Kevin Warsh before Congress, all of which could provide further clues on the interest rate outlook.
Reuters
