Dollar Extends Gains

The dollar index strengthened to 102.4 on Monday, extending the previous week’s 0.3% gain and holding near its highest level since April 2025. The greenback was supported by escalating geopolitical tensions in the Middle East, while investors awaited key US inflation data due later this week. The Houthis continued their attacks on Saudi Arabia, while Ukrainian President Zelenskiy accused Russia of violating the energy ceasefire announced by US President Trump following a strike on a thermal power plant in Kharkiv. Against this backdrop, oil prices remained volatile. Meanwhile, both CPI and PPI data are due this week and are expected to provide further insight into inflationary pressures. Markets largely expect the Fed to keep interest rates unchanged at its October meeting, while pricing in another rate hike in December. The Fed last raised borrowing costs in September, marking its first rate hike since 2023.

The dollar index held above 102 on Monday following four consecutive weeks of gains, as investors cautiously awaited key inflation reports due this week for fresh signals on the Federal Reserve’s next policy move. The September consumer and producer price indexes are scheduled for release on Wednesday and Thursday, respectively. A stronger-than-expected inflation reading could reignite the recent bond selloff by increasing pressure on the Fed to pursue a more aggressive tightening path. Markets are currently pricing in an approximately 83% chance that the Fed will leave interest rates unchanged this month, while the probability of a rate hike in December stands at around 86%. Meanwhile, oil prices declined on hopes that Russian diesel can ease global fuel shortages, reducing inflationary risks. President Trump said Moscow agreed to release diesel fuel to global markets, while claiming that Russia and Ukraine had agreed to an “energy ceasefire” that would take effect immediately.

The US dollar index was little changed around 102.1 on Friday but remained on track for a nearly 0.2% weekly gain, marking its fourth consecutive week of advances and pushing the greenback to its highest level since April 2025. Investors continued to assess developments in the Middle East and their implications for energy prices and inflation. Oil prices eased after US President Trump pledged to refrain from attacking Iran until after the midterm elections, helping to ease concerns over further energy supply disruptions. Nevertheless, markets continued to price in the prospect of the Federal Reserve keeping interest rates higher for longer to contain persistent inflationary pressures. The probability of the Fed holding rates steady this month stood at around 81%, while the odds of a 25bps rate hike in December were approximately 69%.