The US dollar moved slightly higher on Monday and remained close to a two-month high, while Asian currencies traded mixed.
The Japanese yen weakened further as investors monitored elevated oil prices and prepared for a busy week of inflation data and central bank developments.
The US Dollar Index rose around 0.2% to 101.16. That leaves the index on track for a gain of roughly 1.7% in September, which would mark its strongest monthly performance since June.
USD/JPY climbed 0.14% to 157.51, keeping the yen near recent lows. Meanwhile, EUR/USD slipped 0.12% to around 1.14, while GBP/USD edged lower to approximately 1.32.
Oil Prices Support the US Dollar
Brent crude climbed more than 1% to above $106 per barrel after US President Donald Trump rejected an agreement aimed at ending the conflict with Iran and reopening the Strait of Hormuz.
The continued standoff has kept concerns about global energy supplies elevated.
Higher oil prices are also reinforcing inflation worries, particularly as markets assess whether central banks may need to maintain tighter monetary policy for longer.
Treasury Yields and Fed Expectations Boost Dollar
The US dollar has also benefited from stronger US economic data and elevated long-term Treasury yields.
Investors are increasingly expecting the Federal Reserve to maintain a hawkish stance if higher energy prices continue to put upward pressure on inflation.
Attention now turns to several major US economic releases.
The August PCE inflation report is scheduled for Wednesday, while the September nonfarm payrolls report is due on Friday.
The PCE index is closely watched because it is the Federal Reserve’s preferred measure of inflation.
Fed Rate Hike Bets Remain Elevated
Markets are currently pricing in around a 65% probability of another Federal Reserve rate increase at the end of October, according to CME FedWatch.
That follows the Fed’s September rate hike, which lifted the benchmark range to 3.75% to 4.00%.
Several Federal Reserve officials have since suggested that further tightening may be required if inflation remains persistent.
These expectations have helped keep US Treasury yields elevated and supported the dollar against several major currencies.
Japanese Yen Extends Decline
The Japanese yen weakened to around 157.7 per dollar after gaining on Friday.
The earlier rebound followed a call between Japan’s Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent.
Both officials reaffirmed concerns over yen weakness and said Japan and the United States would strengthen cooperation on currency issues.
However, the yen has remained under pressure despite the Bank of Japan’s September rate increase.
Investors continue to question whether Japanese policymakers are moving quickly enough to narrow the interest-rate gap with other major economies.
Australian Dollar Awaits RBA Decision
The Australian dollar traded near $0.70 and was little changed ahead of the Reserve Bank of Australia’s policy decision on Tuesday.
Markets expect the RBA to raise the cash rate by 25 basis points to 4.60%.
That would take Australian interest rates to their highest level in almost 15 years.
The move would also mark the fourth increase this year.
Recent comments from RBA Governor Michele Bullock have highlighted concerns that prolonged increases in energy prices could feed into broader inflation.
Chinese Yuan Comes Under Pressure
The Chinese yuan weakened modestly, with USD/CNH trading around 6.72 and USD/CNY near 6.71.
The offshore yuan had strengthened earlier this month but lost momentum after a three-day meeting between President Trump and Chinese President Xi Jinping failed to produce major public breakthroughs on several key issues.
Investors are now looking ahead to China’s manufacturing and services PMI data on Wednesday.
The figures will be released ahead of the country’s week-long National Day holiday.
Asian Currencies Mostly Weaken
Several other Asian currencies also moved lower against the US dollar.
USD/KRW rose around 0.2% to 1,356.71, while USD/INR gained approximately 0.2% to 96.112.
USD/IDR climbed 0.4% to 17,944.3, while USD/MYR also gained around 0.4% to 4.085.
USD/THB advanced roughly 0.6% to 33.585, while USD/SGD increased around 0.1% to 1.28.
Inflation Data Could Drive the Next Move
Currency markets now face a packed economic calendar.
In addition to US PCE inflation and payroll data, Japan is set to release August CPI figures on Friday.
Eurozone inflation data are also due later in the week.
The combination of inflation data, central bank expectations, Treasury yields and oil prices could determine whether the US dollar extends its recent gains and whether Asian currencies remain under pressure.
