Dollar marches to 4-month high as oil rally points to higher inflation

Dollar index rises to highest since late December
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The dollar continued to rise on Monday, trading at a more than four-month high as investors gauged what last week’s job data and recent oil price rally could mean for Federal Reserve monetary policy. A trio of Fed speakers on the docket Monday will be watched for any hints of the future rate path.The ICE U.S. Dollar Index DXY, +0.11%  gained 0.2% to 92.739, reaching its highest level since late December. The benchmark last week rose 0.2%, logging a fourth straight weekly advance. The euro EURUSD, -0.2424%  fell to $1.1931 from $1.1963 late Friday in New York, while the pound GBPUSD, +0.2660%  was flat around $1.3533. The yen USDJPY, -0.01%  also declined, with the buck buying ¥109.32 compared with ¥109.12 on Friday. The dollar advanced as traders digested Friday’s U.S. jobs report that delivered a disappointing number on new jobs added to the economy, but beat forecasts on the unemployment rate. The joblessness rate fell to 3.9%, the lowest since late 2000, sparking speculation the labor market soon will become so tight that wages will rise at a faster pace. That would likely fuel higher inflation and add pressure on the Fed to raise interest rates more aggressively. Traders became more convinced President Donald Trump will abandon the Iran nuclear deal and re-impose sanctions on the country. That would limit Iran’s oil exports and tighten global supply, which would likely lead to a rise in oil prices. As energy is a big part of headline consumer prices, a continued surge in crude prices could further lift U.S. inflation. “Higher domestic inflation would be just what the Fed needs in order to tilt towards 3 additional rate increases in 2018. Furthermore, the tighter labor market conditions — as seen on Friday’s data — are also expected to push wage growth higher in the medium term. Higher energy prices and stronger wage growth is almost an ‘one-way road’ to higher inflation which would leave no option to the Fed other than raising rates more aggressively — which explains why the greenback stays on an upwards trajectory,” he added.