By Chibuike Oguh and Samuel Indyk
NEW YORK/LONDON, Sept 28 (Reuters) - The dollar was flat against major currencies on Monday, as the continued stand-off between the US and Iran pushed oil prices higher, and as the Treasury market's selloff resumed, boosting yields.
US Treasury yields remain above 5% at multi-decade highs, but the dollar's sentiment is under pressure due to the protracted Middle East, which has hampered oil-and-gas shipping through the Strait of Hormuz.
The euro was flat at $1.1383,
hovering near a two-month low against the dollar. Sterling was flat at $1.3256, but remained close to a three-month low of against the greenback.
"What's happening is that you've got the US rejecting the Iranian offer and oil prices jumped, pushing upward pressure on US yields and that is what's lifting the dollar more broadly," said Marc Chandler, chief market strategist at Bannockburn Forex.
Brent crude futures climbed more than 3% to surpass $107 a barrel, after US President Donald Trump rejected a peace deal with Iran.
Energy supply risks and robust fundamentals in the US economy have heightened inflation concerns and prompted traders to price in a more hawkish Federal Reserve, while the rise in long-end Treasury yields also supported the dollar.
The dollar index, which measures the US currency against a basket of peers, was flat at 101.19, remaining near a two-month high.
YEN WATCH
Traders are closely following developments in the dollar-yen market after Japan's Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent reaffirmed last week that the two countries intend to strengthen cooperation to address yen weakness.
Japan's top currency diplomat Atsushi Mimura added on Monday that markets should take at face value the "very clear" message Tokyo and Washington have about their concerns about yen weakness.
Japan's yen gave up slight gains in Asia trade was last down 0.12% stronger at 157 per dollar.
"Japanese officials can't have it both ways: they can't have this war in Iran that is driving up oil prices and US yields and then try to cap dollar-yen. In my work, I see the dollar-yen being driven by rising US interest rates. I think that's the sort of tug of war between verbal intervention by Japanese officials claiming US support and rising US yields," Chandler said.
DATA FOCUS
Coming economic figures, including the PCE Index on Wednesday and nonfarm payrolls on Friday, are both expected to be consistent with further policy tightening.
Currently, markets are putting a 73% chance of a quarter-point rate hike from the Fed at the October meeting, according to the CME's FedWatch tool, after the central bank raised its interest rate at the September meeting. Traders are almost fully pricing in four quarter-point hikes over the next 12 months.
The Reserve Bank of Australia is also expected to raise interest rates by 25 basis points to a near 15-year high of 4.60% on Tuesday.
The Australian dollar weakened 0.07% versus the greenback to $0.7018.
The kiwi strengthened 0.18% versus the greenback to $0.5664.
The Australian dollar fetched $0.7011 and the kiwi was at $0.5658.
Elsewhere, China's offshore yuan strengthened slightly to 6.715 per dollar, after Trump and Chinese President Xi Jinping's three-day summit did not yield any big public breakthroughs on a host of contentious issues.
(Reporting by Samuel Indyk and Chibuike Oguh; Editing by)
