Dollar index hits highest level since April 2025

Safe-haven demand surges amid escalating Middle East conflict

Persistent US inflation adds to dollar strength

CPI data in focus; odds of rate hold at 78%

US dollar bills. [123rf]
US dollar bills. [123rf]

The US dollar soared to its highest level in 18 months as military tensions escalated across the Middle East. A sharp rise in global oil prices — fueled by Houthi rebel attacks on Saudi Arabia and strikes on oil tankers — drove investors into the dollar as a safe-haven asset. With US inflation concerns also underpinning dollar strength, the currency's next move is expected to hinge on consumer price index data due this week and the Federal Reserve's monetary policy outlook.

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.37 percent to 102.58 on Monday (local time), according to Reuters. That marked its highest level in 18 months, since April 2025.

Analysts attributed the 18-month high to a broad spread of risk-aversion sentiment in global financial markets as military clashes in the Middle East intensified.

International oil prices rose for a third consecutive trading session as geopolitical tensions flared following an attack on Riyadh's international airport in Saudi Arabia.

Brent crude for December delivery settled up 1.84 percent at $106.65 per barrel, while West Texas Intermediate for November delivery closed up 2.06 percent at $93.74. Brent prices remain about 45 percent above their levels before the US-Israel war against Iran began.

As geopolitical uncertainty widened in the Middle East and Ukraine, investors rapidly increased their bets on further dollar gains.

Long positions on the dollar totaled approximately $36 billion in the past week, up roughly 4.3 times from $8.4 billion three weeks earlier. Analysts said the surge was largely driven by investors cutting their exposure to the euro and shifting toward dollar-bullish positions.

US inflation concerns are also supporting the dollar's strength. Traders on the prediction market platform Kalshi largely believe US inflation has already peaked this year, but they do not expect price growth to fall sharply in the near term.

Markets are closely watching September CPI data due Wednesday. The release will be one of the last major economic indicators before the Federal Open Market Committee meeting scheduled for Oct. 27-28, and is seen as a key variable in determining the dollar's near-term direction.

Financial markets are leaning toward the Fed holding rates steady at this month's FOMC meeting. According to the CME Group's FedWatch tool, the probability of a rate hold stands at 78 percent, up sharply from 51 percent a month ago. The probability of a rate hike, by contrast, was limited to 22 percent.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said at the annual meeting of the National Association for Business Economics in Cleveland, Ohio, on Monday that inflationary pressures were "relatively broad-based rather than concentrated in specific sectors." She added that she believed it was "preferable to make relatively prompt, modest adjustments rather than risk delaying policy changes and then needing a larger course correction later."

Mark Chandler, chief market strategist at Bannockburn Global Forex, said the CPI figure was "the real focus for markets this week" and that inflation was likely to come in elevated. However, on the FOMC's next move, he noted that "it would be highly unusual for the Fed to raise rates ahead of an election" and that "the bar for the Fed to actually act is quite high."

Still, some analysts cautioned that the dollar's room for further gains may be limited given how much ground it has already covered.

Joel Kruger, market strategist at LMAX Group, said he was "not convinced that the recent resurgence in risk-off sentiment will translate into sustained dollar strength," citing slowing US economic data, easing inflation pressures and the extent to which expected Fed rate hikes have already been priced into the market.


yckim6452@heraldcorp.com