Dollar ticks up as oil prices climb, Fed rate hike chances firm

Published Tue, Sep 15, 2026 · 08:26 PM

[LONDON] The euro was pinned at one-month lows against a broadly strengthening dollar on Tuesday (Sep 15), as surging oil prices lifted Treasury yields and reinforced expectations that the Federal Reserve will hike interest rates this week.

Benchmark US 10-year Treasury yields surged to their highest since 2007, last up 4.1 basis points on the day to 5.004 per cent.

Oil prices held near a four-month peak, standing at over US$105 a barrel, after Yemen’s Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia and Gulf-Iran talks were postponed.

Markets now see a Fed hike on Wednesday as a near certainty, with CME’s FedWatch tool pricing in a more than 92 per cent chance of an interest-rate increase.

“It’s quite likely they will hike at this point. What’s happening in the bond market is a warning signal, and if they decide to hold rates at this stage, it can lead to unwanted turmoil,” said Francesco Pesole, FX strategist at ING.

“From an FX perspective, we see it as a positive event for the dollar.”

Pressured by broad dollar strength, the euro slipped 0.1 per cent to US$1.154, hovering near its lowest since August 14.

Sterling weakened 0.1 per cent to US$1.348 ahead of a Bank of England interest rate decision on Thursday where consensus is widely tilted towards a hold, though future rate hikes are expected by year-end, according to data compiled by LSEG.

Data on Tuesday showed Britain’s jobs market stayed weak, with vacancies at a four-year low and pay growth steady.

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The yen also pulled away from a seven-month high, leaving the dollar up roughly 0.3 per cent at 154.8 ahead of an expected Bank of Japan rate hike on Friday. It briefly weakened past 155 for the first time in a week earlier on.

Market sentiment on the yen is starting to shift, with speculators turning to a net long position on the Japanese currency for the first time since February.

The New Zealand dollar dipped 0.2 per cent, hitting a two-month low, while the Australian dollar was 0.1 per cent lower at US$0.713.

The dollar’s six-currency index rose 0.1 per cent to 99.58, standing near its highest in about two weeks, also gaining support from weakened risk appetite as stock markets fell.

The renewed energy-induced inflation pressures follow a US jobs report that was much stronger than expected and a pickup in consumer prices for August, strengthening market conviction that the Fed will raise rates on Wednesday.

Economists polled by Reuters also expect at least one more hike by the end of March, reversing a fragile no-change consensus prior to Friday’s official data showing firm inflation.

“If the Fed is viewed as beginning a new hiking cycle rather than calibrating monetary policy, monetary policy could have spillovers to risk assets,” Gabriele Foà, a portfolio manager at Algebris Investments said in a note.

The offshore yuan was flat at 6.712 per dollar, hovering near its strongest in more than three years, after data showing China’s industrial sector regained strength in August, though consumption remained sluggish. REUTERS

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