The US dollar gained ground against most major currencies on Monday as fresh hostilities in the Middle East triggered fears of rising inflation and prompted speculation regarding interest rate hikes by global central banks.
This geopolitical escalation followed a weekend of significant missile and drone strikes between Iranian and US forces, with Tehran targeting American installations in Gulf states and declaring the closure of the strategic Strait of Hormuz shipping corridor, reports Reuters.
Energy markets reacted sharply to the news, with Brent crude futures climbing 4.1 per cent to $79.11 per barrel during Asian trade. Tony Sycamore, a market analyst at IG based in Sydney, observed that the dollar’s movement was largely influenced by surging crude prices.
He noted that this trend reinforces concerns that continued rises in energy costs could lead to central banks advancing the schedule for interest rate hikes.
Current data from the CME Group’s FedWatch tool indicates a 50.9 per cent probability of at least two US rate hikes by the December meeting, an increase from the 47.6 per cent chance recorded on Friday. The US dollar index, which tracks the currency against a basket of six peers, rose 0.1 per cent to 101.13, having earlier reached its highest point since 8 July.
The greenback rose 0.2 per cent against the Japanese yen to 162.075, while the euro fell 0.1 per cent to $1.1397 and the British pound declined 0.2 per cent to $1.3374.
Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington, pointed out that although the dollar was a primary beneficiary of past conflicts, it is beginning from a different position this time due to significant strengthening and a prior adjustment in the Federal Reserve outlook.
He expressed uncertainty over whether the currency would see similar gains should the situation worsen.
Market participants are now awaiting US CPI figures due on Tuesday and PPI gauges on Wednesday. Furthermore, Fed Chair Kevin Warsh is scheduled to provide testimony to the House and Senate.
In Japan, sources familiar with the central bank’s deliberations suggested the Bank of Japan may upwardly revise its economic growth forecast for fiscal 2026, keeping a close watch on inflation risks stemming from a weak yen and AI-related demand.
In cryptocurrency markets, Bitcoin dropped 2.1 per cent to $62,790.02, and Ether shed 2.3 per cent to trade at $1,779.01.
