By Shashwat Chauhan and Jiaxing Li
Sept 15 (Reuters) - The euro was pinned at one-month lows against a broadly strengthening dollar on Tuesday, as surging oil prices lifted Treasury yields and reinforced expectations that the Federal Reserve will hike interest rates this week.
Benchmark U.S. 10-year Treasury yields surged to their highest since 2007, climbing 7.2 basis points on the day to 5.03%.
Oil prices held near a four-month peak, standing at $107.7 a barrel, after Yemen's Iran-aligned Houthis
launched a new wave of attacks on Saudi Arabia and Gulf-Iran talks were postponed.
Markets now see a Fed hike on Wednesday as a near certainty, with CME's FedWatch tool pricing in a more than 94% chance of an interest-rate increase.
"It's quite likely they will hike at this point. What's happening in the bond market is a warning signal, and if they decide to hold rates at this stage, it can lead to unwanted turmoil," said Francesco Pesole, FX strategist at ING.
"From an FX perspective, we see it as a positive event for the dollar."
Pressured by broad dollar strength, the euro slipped 0.1% to $1.153, hovering near its lowest since August 14.
Sterling weakened 0.1% to $1.34 ahead of a Bank of England interest rate decision on Thursday where consensus is widely tilted towards a hold, though future rate hikes are expected by year-end, according to data compiled by LSEG.
Data on Tuesday showed Britain's jobs market stayed weak, with vacancies at a four-year low and pay growth steady.
The yen also pulled away from a seven-month high, leaving the dollar up roughly 0.4% at 154.94 ahead of an expected Bank of Japan rate hike on Friday. It briefly weakened past 155 for the first time in a week earlier on.
Market sentiment on the yen is starting to shift, with speculators turning to a net long position on the Japanese currency for the first time since February.
The New Zealand dollar dipped 0.1%, briefly hitting a two-month low, while the Australian dollar was 0.2% lower at $0.712.
The dollar's six-currency index rose 0.1% to 99.61, standing near its highest in about two weeks, also gaining support from weakened risk appetite as stock markets fell.
RATE HIKES AWAITED
The renewed energy-induced inflation pressures follow a U.S. jobs report that was much stronger than expected and a pickup in consumer prices for August, strengthening market conviction that the Fed will raise rates on Wednesday.
Economists polled by Reuters also expect at least one more hike by the end of March, reversing a fragile no-change consensus prior to Friday's official data showing firm inflation.
"On Wednesday, investors will look to Kevin Warsh and the dot plot to tease out if this is a hike, or a hiking cycle," said Paul Eitelman, global chief investment strategist at Russell Investments.
The offshore yuan was flat at 6.714 per dollar, hovering near its strongest in more than three years, after data showing China's industrial sector regained strength in August, though consumption remained sluggish.
(Reporting by Jiaxing Li in Hong Kong and Shashwat Chauhan in Bengaluru; Editing by Amanda Cooper and Jan Harvey)
