Dollar Rises to 99.2 as Markets Brace for the Fed

The US dollar index strengthened, approaching the 99.2 level during Monday's trading (Sept 14), marking a fourth consecutive session of gains. Investors are positioning themselves ahead of the Federal Reserve's policy decision while closely monitoring the impact of surging oil prices on inflation.

Markets currently estimate an approximately 86% probability that the Fed will raise interest rates by 25 basis points on Wednesday. Investors also anticipate the possibility of further rate hikes before year-end should inflationary pressures remain elevated.

US inflation data released on Friday showed the annual CPI holding steady at 3.4% in August. Meanwhile, Core CPI rose 0.3% month-on-month, exceeding market forecasts. Producer prices also increased, while labor market data indicated that US employment conditions remain robust.

Inflationary pressures have intensified following a renewed surge in oil prices. Saudi Arabia shut down the East-West pipeline—an alternative route for oil shipments designed to bypass the Strait of Hormuz. This disruption has heightened supply concerns and threatens to keep energy prices elevated.

The combination of persistent inflation, a strong labor market, and rising oil prices is bolstering the dollar by increasing the likelihood that the Fed will maintain a tight policy stance. As long as expectations for rate hikes remain high, the DXY is likely to hold firm, with the Fed's decision on Wednesday serving as the primary catalyst for the next market move.