The U.S. dollar surged against most major currencies as renewed conflict in the Middle East stoked inflation fears and heightened expectations of further interest rate hikes by central banks.
Dollar Strengthens Across the Board
The greenback rose 0.1% against the Japanese yen to 161.92, while the euro slipped 0.1% to $1.1403. The British pound fell 0.1% to $1.3383, and the Australian dollar declined 0.1% to $0.6942.
Escalation in the Middle East Shifts Market Sentiment
The geopolitical landscape shifted dramatically over the weekend, with intense exchanges of fire between U.S. and Iranian forces, renewed closure of the Strait of Hormuz, and a sharp upward reaction in oil prices.
“Following the escalation late last week — which continued over the weekend — the dollar responded, and crude oil prices were the main driver,” said Tony Sycamore, market analyst at IG in Sydney, speaking to Reuters. “This reignites concerns that if energy prices continue rising from here, we could see accelerated interest rate increases.”
Markets Price in More Fed Hikes
Investors are now slightly leaning toward two more interest rate hikes by the U.S. Federal Reserve before year-end. According to the CME Group’s FedWatch tool, futures contracts assign a 52.1% probability to two or more rate increases by the Fed’s December meeting — up from 47.6% on Friday, July 10, 2026.
Dollar Index Hits Highest Since Early July
The U.S. Dollar Index — which measures the greenback’s strength against a basket of six major currencies — held steady at 101.07. It had climbed as much as 0.2% from Friday’s close, reaching its highest level since July 8.