Dollar Holds Near 18-Month High as Markets Await US Inflation and Monitor Mideast Tensions
Market Overview and Key Drivers
By Ankur Banerjee and Li Gu
Dollar Strength Amid Geopolitical Uncertainty
SINGAPORE/SHANGHAI, Oct 12 (Reuters) - The dollar held ground near its strongest level in a year and a half in early Asian trade on Monday as an escalating Middle East conflict kept investors wary ahead of key US inflation data later this week that will influence monetary policy.
Oil Price Volatility and Mideast Tensions
Oil prices swung between gains and losses after Yemen's Iran-backed Houthis stepped up strikes on Saudi Arabia while two tankers were attacked over the weekend.
Prices were also influenced by Sunday's announcement from US President Donald Trump about an energy ceasefire between Ukraine and Russia. Brent crude futures were down 1% at $103.55 per barrel in Asian hours. [O/R]
Dollar Index and Currency Movements
The dollar index, which measures the greenback's strength against a basket of six currencies, was slightly down at 102.14 but remained not far from the 18-month peak it scaled last week. Trading was confined to a tight range with Japanese markets shut for a holiday, thinning liquidity across the region.
"We expect the Houthis to continue their attacks on Saudi Arabian energy assets, supporting gains in the oil price and the USD," analysts at Commonwealth Bank of Australia said in a note.
They added that while Iran had confirmed receiving a US peace proposal through intermediaries, "we do not expect a breakthrough this week."
Against the yen, the US dollar was down 0.14% at 158.160 yen. The Australian dollar and its kiwi counterpart were both roughly flat at $0.6988 and $0.5614, respectively.
Focus Shifts to US Inflation Data
Upcoming CPI Report and Fed Policy
SPOTLIGHT MOVES TO US INFLATION DATA
Beyond the geopolitical backdrop, the market's focus turns to Wednesday's US consumer price index report, one of the last major economic releases before the Federal Reserve's late-October meeting on interest rates.
Data last week showed US consumer sentiment slumped further in early October as the rising cost of living because of the Middle East conflict soured households' views of the economy.
Interest Rate Expectations
The Fed raised rates last month for the first time since 2023 to rein in inflation, with markets keeping a close watch on economic data to gauge whether policymakers may move again. Traders are pricing in an 81% chance of the Fed standing pat this month, up from 51% a month earlier, CME FedWatch tool showed.
Even otherwise, the dollar's rally may be due for a pause in the near term with some pullback possible, Barclays analysts said.
They said sharp moves in bond markets had tightened global financial conditions, which could prompt Fed officials to strike a more reassuring tone heading into the October meeting, particularly if the CPI reading comes in soft.
Global Financial Conditions and Market Reactions
Severe selloffs in bond markets in the past few weeks had left investors worried as borrowing costs across the globe rose to multi-decade highs on worries over inflation, energy prices and ballooning government debt.
Currency and Crypto Market Updates
Euro, Pound, and Yuan Movements
The euro was up nearly 0.1% at $1.121, after clocking a fifth straight week of losses as the common currency bore the brunt of investor angst around France's fiscal health amid political uncertainty before the 2027 presidential election.
"It is still too early to tell whether higher borrowing costs will be sufficient to impose greater fiscal discipline on the French government," said OCBC FX strategists.
"We expect EURUSD to consolidate as the intensity of French fiscal and political headlines is unlikely to be sustained," they said in a note, adding any rally in the euro is likely to be capped by Europe’s structural challenges.
The British pound was little changed at $1.3245. Against the Chinese yuan, the US dollar was flat at 6.6927 yuan in offshore trade.
Cryptocurrency Performance
In cryptocurrencies, bitcoin rose 0.2% to $83,788.50, while ether edged 0.15% up to $2,540.08.
(Reporting by Li Gu in Shanghai and Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman)