USD Reaches 18-Month High As Iran War Tensions Rise
The US dollar was at its highest in a year and a half in Asian trade, as the Iran crisis has heightened investors' anxiety about US inflation, which will be released later this week and influence monetary policy decisions. Oil prices were volatile after the Iran-backed Houthis of Yemen launched strikes on Saudi Arabia while two tankers were attacked over the weekend.
Price fluctuations also followed US President Donald Trump’s surprise announcement of an energy ceasefire between Russia and Ukraine, which he deemed to be effective immediately. However, Ukrainian leader Volodymyr Zelenskiy said he was awaiting further details of the deal, and Putin has made no acknowledgement of the announcement. Ukraine has been carrying out strikes on Russian oil refineries, sending diesel prices reeling, thereby, according to Trump, hurting the Republican Party ahead of US midterm elections next month.
Market analysts observing the Saudi attacks have also said that the Houthis are likely to continue their strikes on the Kingdom’s energy assets, which will push up oil prices and the value of the USD. Analysts are also pessimistic about a breakthrough in the peace proposals sent to Iran by the White House through intermediaries.
Brent crude futures fell 1% to $103.55 per barrel in Asia. The dollar index was at 102.14, not far off from the 18-month peak it scaled last week. This index measures the value of the American dollar against six other currencies. Trading was tight on Monday morning as the Japanese market was closed for a holiday, causing liquidity to shrink across Asia.
The greenback fell by 0.14% against the yen, settling at 158.160 yen. The Australian dollar and the New Zealand dollar were both $0.6988 and $0.5614, respectively. The US consumer inflation report will be released on Wednesday and will be one of the last economic reports released before the Federal Reserve's policy meeting this month. Therefore, it could be important in determining the future direction of the American currency.
Data released in early October indicated that US consumer sentiment has eroded further, despite the proximity to the holiday season. As the crisis in the Middle East escalates, households are battling rising prices and can spend less.
The Fed raised interest rates last month for the first time since 2023 to control inflation. Market observers are closely watching economic data to determine whether policymakers could raise interest rates again. Traders are betting that there is an 81% chance that rates will remain unchanged, up from the previously anticipated 51% last month.
Researchers are pointing out that the chances of rates being increased this month are bleak; however, if the Fed decides to raise interest rates, there is speculation about whether it could repeat the process once again in December and January. Analysts have forecast that the next change in interest rates is most likely to happen in March.
A rapid sell-off in bond markets led investors to grow wary as borrowing costs from around the world reached record highs in decades owing to increasing inflation, energy prices and government debt.
