The U.S. dollar remained close to a two-month high Monday as renewed U.S.-Iran tensions pushed oil prices higher and strengthened expectations that the Federal Reserve could maintain a restrictive policy stance. The euro and British pound each fell 0.1% against the dollar to approximately $1.1379 and $1.3232, respectively.

The dollar index, which measures the greenback against a basket of major currencies, edged up to 101.15. It was heading toward a 1.7% gain for September, which would represent its strongest monthly performance since June.

Oil Prices Add to the Dollar’s Support

Brent crude climbed above $106 a barrel Monday after President Donald Trump rejected a proposed peace arrangement with Iran that could have helped resolve the conflict and reopen the Strait of Hormuz.

Higher energy prices are becoming an important consideration for currency markets because prolonged supply risks can reinforce inflation pressures. Strong U.S. economic fundamentals combined with elevated oil prices have encouraged traders to price a more hawkish Federal Reserve, while high long-term Treasury yields have provided additional support for the dollar.

OCBC FX strategist Sim Moh Siong said the greenback could strengthen further in the near term if energy-market tensions persist and inflation risks continue to build. The bank’s base case remains for a moderate dollar rally into year-end.

U.S. Inflation and Jobs Data Take Center Stage

Investors are now turning toward a busy U.S. economic calendar for additional signals about monetary policy. The Personal Consumption Expenditures index is due Wednesday, followed by the nonfarm payrolls report Friday. Both releases could influence expectations for the Federal Reserve’s next policy decision.

CME Group’s FedWatch tool showed markets pricing approximately a 65% probability of an October rate increase. Strong inflation or employment data could reinforce expectations for tighter policy, while weaker figures could alter the current rate outlook.

Yen Faces Renewed Pressure

The Japanese yen weakened 0.3% to around 157.7 per dollar after gaining Friday following discussions between Japan’s Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent. The officials reaffirmed concerns about yen undervaluation and their intention to strengthen cooperation.

The yen remains sensitive to the wide interest-rate differential between Japan and the United States. Japan’s monetary-policy outlook will therefore remain an important variable for currency traders as domestic inflation and central-bank expectations evolve.

Australia and China Add Regional Signals

The Australian dollar slipped 0.07% to $0.7017, while the New Zealand dollar was little changed at $0.5661. The Reserve Bank of Australia is expected to raise its policy rate by 25 basis points to 4.60% Tuesday, a level described in the source material as a near 15-year high and potentially the final increase of the tightening cycle.

Meanwhile, the offshore yuan weakened to approximately 6.7235 per dollar after the three-day summit between Trump and Chinese President Xi Jinping failed to produce major publicly announced breakthroughs on several contentious issues. Chinese manufacturing and services data later in the week could provide additional signals for the regional currency outlook.

What Investors May Watch Next

The dollar’s near-term direction will depend heavily on the interaction between energy prices, U.S. inflation and expectations for Federal Reserve policy. A sustained rise in oil could reinforce inflation concerns and keep rate expectations elevated, while softer economic data could reduce pressure for additional tightening.

For currency investors, the coming week brings several potential catalysts, including U.S. PCE inflation, nonfarm payrolls, China purchasing managers’ indexes and inflation data from Japan and the euro zone. Developments surrounding the Strait of Hormuz and U.S.-Iran tensions will remain another key variable because changes in energy supply expectations could quickly alter inflation and currency-market pricing.