Dollar Strengthens as Fed Rate Hike Bets Aimed at Curbing Inflation; US Jobs Data in Focus

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The US dollar strengthened against major currencies in trading on the New York foreign exchange market on Monday, September 28, as rising oil prices led the market to expect that the US central bank may raise interest rates further to curb inflation. The dollar index rose 0.22% to 101.197, while the US dollar strengthened against the yen to 157.40 yen from 157.13 yen on Friday, and the euro weakened against the US dollar to 1.1368 dollars from 1.1399 dollars. Crude oil prices surged about 3% after President Donald Trump rejected Iran's conditional proposal regarding the reopening of the Strait of Hormuz, before paring gains later. As a result, the yield on 10-year US Treasury bonds jumped above 5.2% to 5.261%, and the 30-year yield reached 5.571%. Several Fed officials signaled support for further rate hikes, with Lisa Cook, a member of the Fed's Board of Governors, saying on Monday that she expects inflationary pressures to continue rising in the coming months due to demand related to artificial intelligence technology and higher oil prices. Meanwhile, the CME FedWatch tool indicated that investors priced in a 70.3% probability that the Fed will raise interest rates by another 0.25% at its October meeting, up from 57.6% last week and 17.7% last month. Analysts expect the September nonfarm payrolls figure, to be released on Friday, October 2, to show an increase of 98,000 jobs, after a gain of 162,000 in August, and expect the September unemployment rate to hold steady at 4.1%.

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Fed officials signal support for further rate hikes and markets price a 70.3% chance of a 25bp October hike, pushing the effective funds rate higher.

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