By Jiaxing Li
HONG KONG, Sept 29 (Reuters) - The dollar inched higher on Tuesday to hover near a two-month high as volatile oil prices and a rapid climb in Treasury yields lent support, though gains were limited as traders awaited US data this week for clues to the Federal Reserve's rate path.
The euro traded near its weakest in three months at $1.1360 after the European Central Bank's chief signalled measured steps to quell inflation. Sterling was down 0.1% at $1.3242, also not far off a three-month
trough.
The dollar index, which measures the US currency against a basket of peers, was a touch higher at 101.27 and on track to advance 1.8% this month, its best performance since June.
Oil prices crept back up, with Brent crude futures above $107 a barrel as markets doubted the success of renewed efforts to end the Iran war, after US President Donald Trump rejected Tehran's ceasefire proposal.
A deepening selloff in US Treasuries pushed yields to new peaks, with the 10-year benchmark at its highest since 2007 and the 30-year at its highest since 2004.
The monetary policy-sensitive two-year yield also rose to its highest in more than two years, closing in on 5%.
"I think the US dollar is just going to keep growing a little bit higher," said Joseph Capurso, head of foreign exchange at the Commonwealth Bank of Australia.
"We're more likely to get stronger US economic data which shows that the US economy is exceptional, and I think that's going to help to push up US interest rates compared to elsewhere, and help push up the US dollar."
CENTRAL BANKS' TIGHTENING EYED
US data due later in the week, including the PCE price index on Wednesday and nonfarm payrolls on Friday, is expected to support the case for further Fed rate hikes.
Markets now see a more than 70% chance of a rate hike by the Federal Reserve at the end of October, up from 57% a week ago, according to CME Group's FedWatch tool.
Australia's central bank raised its cash rate to a 15-year high of 4.60% on Tuesday in a unanimous decision, saying inflation was too high and it was prepared to hike further if needed.
The Australian dollar briefly spiked to a high of $0.7029 on the decision before paring some gains, while the kiwi traded 0.2% lower at $0.5657.
The Japanese yen weakened a touch to 157.5 per dollar, giving back a chunk of Monday's gains after Japan's top currency diplomat Atsushi Mimura said markets should heed the "very clear" warning Tokyo and Washington delivered last week on the yen, leaving traders on edge over the risk of intervention.
Elsewhere, the offshore yuan was little changed at 6.71 per dollar, following the limited outcomes of last week's US-China summit.
(Reporting by Jiaxing Li in Hong Kong; Editing by Kevin Buckland and Clarence Fernandez)
