The US dollar remained close to a two-week high on Wednesday, 2 September 2026, as renewed fighting in the Middle East drove oil prices higher and revived concerns that inflation could prove harder to contain.
The latest escalation followed US air strikes on Iran on Tuesday, with Tehran responding in kind. Brent crude rose almost 1% in early trading to $95.52 a barrel, while West Texas Intermediate gained 0.89% to $91.02. ([ca.investing.com](https://ca.investing.com/news/economy-news/dollar-holds-firm-as-middle-east-hostilities-lift-oil-4825158?utm_source=openai))
Investors have turned towards the dollar’s traditional safe-haven qualities as tensions increase, while higher US Treasury yields have added to its appeal. The dollar index, which tracks the currency against a basket including the euro and yen, stood at 99.67.
“Continued vigilance is needed over the situation in the Middle East today,” said Kumiko Ishikawa, senior foreign exchange analyst at Sony Financial Group. ([ca.investing.com](https://ca.investing.com/news/economy-news/dollar-holds-firm-as-middle-east-hostilities-lift-oil-4825158?utm_source=openai))
Market expectations for a Federal Reserve interest rate increase in September have also strengthened. Money markets were pricing in a 67% chance of a rise, up from roughly 40% a week earlier, according to CME Group’s FedWatch tool.
The shift came despite weaker-than-expected figures for US job openings and manufacturing activity. Investors are now awaiting the August employment and inflation data, which will be released before the Federal Reserve’s policy meeting on 15 and 16 September.
Federal Reserve governor Michael Barr said on Tuesday that the central bank may need to raise interest rates if inflation does not slow quickly. A higher cost of borrowing would typically support the dollar by increasing the return available on US assets. ([ca.investing.com](https://ca.investing.com/news/economy-news/dollar-holds-firm-as-middle-east-hostilities-lift-oil-4825158?utm_source=openai))
Oil prices add to pressure on global markets
The yield on the benchmark 10-year US Treasury note edged up to 4.8%, while Japan’s equivalent yield reached 3%, having touched a 30-year milestone a day earlier. Rising yields have encouraged demand for the dollar while weighing on riskier assets such as equities.
The Japanese yen was little changed at 160.21 to the dollar, remaining above the psychologically important 160 level despite expectations that the Bank of Japan could raise rates this month.
US Treasury Secretary Scott Bessent voiced support for “decisive” action to address the yen’s weakness during talks with Bank of Japan governor Kazuo Ueda, according to the US Treasury Department. Analysts said renewed currency intervention was unlikely without a reduction in tensions around the Strait of Hormuz. ([ca.investing.com](https://ca.investing.com/news/economy-news/dollar-holds-firm-as-middle-east-hostilities-lift-oil-4825158?utm_source=openai))
Sterling slipped 0.04% to $1.3509, while the Australian dollar was broadly stable at $0.7143. The New Zealand dollar eased to $0.5889 ahead of a central-bank decision at which markets widely expected a quarter-point rate increase.
