The US Dollar (USD) has maintained its strength against major currencies, supported by a combination of resilient US economic data, elevated Treasury yields, and higher oil prices, according to multiple sources [2][4]. Over the past week, the USD was the strongest against the Australian Dollar, gaining 1.82%, and also posted gains against other major currencies such as the Euro (0.90%), British Pound (0.94%), and Japanese Yen (0.16%) [4]. The USD Index remained above 101.20, with US stock index futures trading marginally lower [4].
A key driver behind the recent market moves has been the rise in oil prices, attributed to deteriorating US–Iran negotiations and President Trump's rejection of Iran's proposal to reopen the Strait of Hormuz [1][4]. Scotiabank’s FX strategy team notes that the extent and duration of higher energy prices are critical for central bank policymakers, fueling expectations of further monetary tightening across major developed economies [1]. OCBC analysts add that ongoing Middle East tensions could further lift energy prices and entrench inflation concerns, potentially causing the USD to overshoot in the near term [2].
Looking ahead, this week’s US labor market report is highlighted as a pivotal event, with Bloomberg consensus expecting nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, and the unemployment rate to remain at 4.1% [2]. OCBC analysts suggest that an upside surprise in payrolls could reinforce expectations for additional Federal Reserve rate hikes, with markets currently pricing in nearly four hikes over the next year, though this is seen as potentially aggressive unless demand-driven inflation becomes more prominent [2]. Wage growth and rental inflation are cited as critical indicators to monitor [2].
Commerzbank’s analysis points to a structural shift in US capital inflows, with support for the USD increasingly reliant on foreign investment in US equities rather than bonds [3][4]. This makes the currency more sensitive to US stock market performance, household wealth, and private consumption, raising the risk that a downturn in equities could undermine USD support [3][4].
Geopolitical developments also remain in focus, with President Trump denying reports of offering Iran access to frozen funds or sanctions relief, while Iranian officials await a formal US response following indirect talks [4].
CONCLUSION
The US Dollar's recent resilience is underpinned by rising oil prices, persistent Middle East tensions, and expectations of further Fed tightening. However, its support is increasingly tied to US equity market performance, introducing new vulnerabilities. Upcoming US labor market data and ongoing geopolitical developments are likely to be key drivers for the currency in the near term.