Dollar Remains Near 18-Month High Amid Middle East Tensions and Upcoming US Inflation Data

SINGAPORE/SHANGHAI, Oct 12 (Reuters) – The dollar continued to trade near its highest level in 18 months during early Asian trading on Monday, as ongoing conflicts in the Middle East heightened investor caution ahead of significant US inflation data due later this week, which could impact monetary policy.

Oil prices fluctuated as Yemen's Iran-backed Houthis increased attacks on Saudi Arabian targets, with two tankers reportedly attacked over the weekend. Additionally, oil markets were affected by US President Donald Trump’s announcement of an energy ceasefire between Ukraine and Russia. As a result, Brent crude futures decreased by 1% to $103.55 per barrel.

The dollar index, which reflects the dollar's value against a basket of six currencies, edged down to 102.14, remaining close to the peak it reached last week. Trading volume remained low, particularly with Japanese markets closed for a holiday.

Analysts at Commonwealth Bank of Australia noted that further Houthi attacks on Saudi energy assets could sustain oil price increases and support the dollar's strength. They also stated that while Iran confirmed it had received a US peace proposal through intermediaries, they do not anticipate any significant developments this week.

In currency exchanges, the US dollar dipped 0.14% against the yen, reaching 158.160 yen, while both the Australian and New Zealand dollars were nearly unchanged at $0.6988 and $0.5614, respectively.

Market attention is now shifting to the US consumer price index report scheduled for Wednesday, which is one of the crucial economic indicators preceding the Federal Reserve's late-October meeting on interest rates. Recent data indicated that US consumer sentiment worsened in early October, driven by rising living costs attributed to the Middle East conflict.

The Federal Reserve raised interest rates last month for the first time this year, aiming to control inflation, and markets are noting an increasing chance of the Fed maintaining rates this month, now estimated at 81%, up from 51% a month ago, according to the CME FedWatch tool.

Barclays analysts suggested that a temporary pause in the dollar's rally could be on the horizon due to recent volatility in bond markets, tightening global financial conditions, which might encourage Fed officials to adopt a more reassuring stance ahead of the meeting, particularly if the CPI data is soft.

Amidst severe selloffs in bond markets recently, global borrowing costs have reached multi-decade highs due to inflation concerns and increased energy prices. The euro gained nearly 0.1% to $1.121, following a fifth consecutive week of losses, as investors expressed concerns over France’s fiscal situation ahead of the 2027 presidential election.

OCBC FX strategists commented that it is too early to determine if higher borrowing costs will enforce stricter fiscal discipline in the French government.

The British pound remained stable at $1.3245, and the US dollar held steady against the Chinese yuan at 6.6927 yuan in offshore trading.

In the cryptocurrency market, bitcoin rose 0.2% to $83,788.50, while ether increased by 0.15% to $2,540.08.