The U.S. dollar remained close to a two-month high on Monday, supported by rising oil prices and resilient economic data.
The greenback is also heading toward its strongest monthly gain since June, as investors increase expectations that the Federal Reserve could keep interest rates higher for longer.
Dollar Index Extends September Gains
The U.S. Dollar Index, which tracks the greenback against six major currencies, rose 0.2% to 100.91.
The index is on course for a gain of around 1.7% in September.
Higher long-term U.S. Treasury yields have supported the dollar, while the latest surge in energy prices has added to concerns that inflation could remain elevated.
Oil Prices Add to Inflation Concerns
Brent crude oil climbed more than 1% and moved above $106 per barrel.
The rise came after U.S. President Donald Trump rejected a ceasefire proposal linked to reopening the Strait of Hormuz.
Continued disruption around the key energy route has kept pressure on global oil prices.
Higher energy costs could also increase inflationary pressure across major economies, strengthening expectations that central banks may need to maintain restrictive monetary policies.
Euro and Pound Struggle Against Stronger Dollar
Major European currencies struggled to gain momentum as wider interest-rate differentials continued to support the U.S. dollar.
The euro fell around 0.23% to $1.1300.
Investors are now waiting for preliminary Eurozone inflation figures later this week, which could provide new clues about the European Central Bank’s policy outlook.
The British pound was little changed near $1.3265.
Sterling remained under pressure as traders balanced persistent UK inflation against signs of slowing economic growth.
Japanese Yen Weakens Toward 158
The Japanese yen slipped around 0.3% to 157.70 per dollar.
The move reversed part of Friday’s gains after Japanese Finance Minister Satsuki Katayama said President Trump had raised concerns about the weakness of the yen during a recent meeting.
Katayama and U.S. Treasury Secretary Scott Bessent have reiterated their commitment to addressing disorderly currency movements.
However, traders continue to test Japan’s willingness to intervene in the foreign exchange market.
The yen remains under pressure because of the large interest-rate gap between Japan and the United States.
The Bank of Japan’s September policy decision did little to convince markets that this yield difference would narrow significantly in the near term.
Australian Dollar Steady Ahead of RBA Decision
The Australian dollar traded close to $0.7000 as investors prepared for the Reserve Bank of Australia’s upcoming policy decision.
Markets are pricing in a strong possibility of a 25-basis-point rate increase, which would take the cash rate to 4.6%.
That would represent the highest level in nearly 15 years.
Expectations of another rate hike have increased following hawkish comments from RBA Governor Michele Bullock, particularly regarding inflation risks linked to higher energy prices.
US PCE and Jobs Report in Focus
Currency markets now face a busy week of major economic releases.
Investors will closely monitor the U.S. Personal Consumption Expenditures price index on Wednesday.
The PCE index is one of the Federal Reserve’s preferred measures of inflation and could significantly influence expectations for future interest-rate decisions.
Attention will then shift to Friday’s September nonfarm payrolls report.
A strong labor-market reading could further support expectations that the Fed will maintain a restrictive policy stance.
Markets Increase Fed Rate Hike Expectations
According to CME FedWatch data, traders are pricing in around a 65% probability of another 25-basis-point Federal Reserve rate increase in October.
Those expectations have helped keep the U.S. dollar supported against most major currencies.
Markets will also closely follow comments from several central bank officials throughout the week.
ECB President Christine Lagarde is scheduled to speak, while Federal Reserve officials including Michelle Bowman, Lisa Cook and Tom Barkin are also expected to deliver remarks.
Any additional hawkish signals from Fed policymakers could extend the dollar’s recent rally.
Meanwhile, euro traders will be watching closely for any indication that the ECB remains concerned about inflation driven by rising energy prices.
