Dollar ticks higher as oil prices climb

The euro was pinned at one-month lows against a broadly strengthening dollar on Tuesday, 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, climbing 7.2 basis points on the day to 5.03 percent.

Oil prices held near a four-month peak, standing at $107.7 a barrel, after Yemen’s Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia and Gulf-Iran talks were postponed.

Tap here to add The Daily Star as a trusted source

Markets now see a Fed hike on Wednesday as a near certainty, with CME’s FedWatch tool pricing in a more than 94 percent 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 percent to $1.153, hovering near its lowest since August 14. Sterling weakened 0.1 percent to $1.34 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.

The yen also pulled away from a seven-month high, leaving the dollar up roughly 0.4 percent at 154.94 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.