Dollar holds 18-month peak as Mideast tensions, US inflation data loom

The dollar was holding its ground Monday morning in Asian trading, hovering near the strongest level it had reached in eighteen months. The currency's resilience reflected a market caught between two competing anxieties: the escalating conflict in the Middle East and the uncertainty surrounding inflation data due to arrive later in the week. Both forces were pushing traders toward the safety of dollars, even as other pressures threatened to pull the currency back down.

The Middle East remained the immediate flashpoint. Yemen's Houthi forces, backed by Iran, had intensified their strikes against Saudi Arabian energy infrastructure over the weekend. Two tankers had also come under attack. These developments sent oil prices into a volatile dance—Brent crude futures were trading down 1% at $103.55 per barrel by early Asian hours, though the underlying pressure from supply disruptions kept energy markets tense. Analysts at Commonwealth Bank of Australia expected the Houthi campaign to persist, which would likely continue supporting both oil prices and demand for dollars as a hedge against energy-driven inflation. Complicating the picture was a Sunday announcement from President Donald Trump about an energy ceasefire between Ukraine and Russia, a development that added another layer of uncertainty to how energy markets might move.

The dollar index, which tracks the greenback's strength against six major currencies, was slightly down at 102.14 but remained close to the eighteen-month peak it had scaled the previous week. Trading volumes were thin—Japanese markets were closed for a holiday, draining liquidity from the region—which meant price movements were confined to narrow ranges. Against the Japanese yen, the dollar had weakened slightly to 158.160 yen. The Australian dollar and New Zealand dollar were essentially flat, holding at $0.6988 and $0.5614 respectively.

But the real test was coming Wednesday. The US consumer price index report would be one of the last major economic releases before the Federal Reserve's late-October meeting on interest rates. The stakes were high because inflation data would shape expectations for whether the Fed would raise rates again. The central bank had already lifted rates in September for the first time since 2023, and traders were now pricing in an 81% probability that policymakers would hold steady this month—a significant shift from just a month earlier, when the odds of a pause had stood at only 51%. Consumer sentiment had already taken a hit in early October, with households growing more pessimistic about the economy as the rising cost of living, partly driven by Middle East tensions, weighed on their outlook.

Some analysts suggested the dollar's rally might be vulnerable to a pullback in the near term. Barclays strategists noted that sharp moves in bond markets had tightened financial conditions globally, which could push Fed officials to adopt a more reassuring tone heading into the October meeting—especially if the CPI report came in softer than expected. The bond market selloffs of recent weeks had left investors rattled as borrowing costs worldwide climbed to levels not seen in decades, driven by concerns over inflation, energy prices, and swelling government debt.

Elsewhere in currency markets, the euro edged up nearly 0.1% to $1.121, though it was nursing losses from five straight weeks of declines. The common currency had borne the brunt of investor anxiety over France's fiscal health amid political uncertainty before the 2027 presidential election. OCBC FX strategists cautioned that it remained unclear whether higher borrowing costs would force greater fiscal discipline on the French government, and they expected the euro to consolidate rather than mount a sustained rally, constrained by Europe's deeper structural challenges. The British pound was essentially unchanged at $1.3245, while the Chinese yuan held flat against the dollar at 6.6927 in offshore trading.

In the cryptocurrency space, bitcoin rose 0.2% to $83,788.50, and ether edged up 0.15% to $2,540.08. The week ahead would belong to the inflation data and whatever signals it sent about the Fed's next move—a moment that would likely determine whether the dollar's eighteen-month peak would hold or give way.