Dollar Holds Near 18-Month High

The US dollar index hovered around 102.5 on Tuesday, remaining near its strongest level since April 2025 as investors awaited key inflation reports that could influence the Federal Reserve’s monetary policy outlook. The US consumer price index is due on Wednesday, followed by producer inflation data on Thursday. Markets are currently pricing in roughly an 80% probability that the Fed will leave interest rates unchanged this month, while assigning nearly an 88% chance of a rate hike in December. Investors will also assess existing home sales data and remarks from Fed officials Christopher Waller, Tom Barkin and Susan Collins on Tuesday. The dollar received additional support from safe-haven demand amid rising geopolitical tensions, as the US considers assisting Saudi Arabia in its fight against Iran-backed Houthi militants in Yemen, while the recently announced Russia-Ukraine “energy ceasefire” has already been violated.

The dollar index strengthened to 102.5 on Monday, holding near its highest level since April 2025, as investors expect inflation to rise further and escalating Middle East tensions boosted the dollar’s safe-haven appeal. Crude oil rose for a third consecutive session as President Zelenskyy accused Russia of violating the energy ceasefire with continued strikes, while Saudi Arabia reported new drone and missile attacks following a deadly strike on Riyadh’s airport. Meanwhile, both CPI and PPI data are due this week. 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 euro, the index’s largest component, weakened further amid fiscal concerns and political unrest in France.

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.