Investing.com - The U.S. dollar surged to a near two-week high on Monday, as foreign exchange desks aggressively priced in a Federal Reserve interest rate hike this week amid a fresh spike in crude oil and sticky U.S. inflation data.

The Dollar Index, which tracks the greenback against a basket of six major currencies, rose 0.55% to trade at 99.55, recovering sharply after snapping two consecutive weeks of modest declines.

In contrast, the euro fell 0.5% to a near two-week low at $1.1500. Traders continued to digest last week’s European Central Bank interest rate hike to 2.50%, weighing euro area stagflation risks against a surging greenback.

The Japanese yen consolidated after several sessions of strong gains, with the dollar advancing 0.65% against the Japanese currency to trade around 154.55. Despite Monday’s pullback, the yen remained anchored near seven-month high watermarks touched last week, keeping a 4% gain intact for the month of September.

A high-stakes triad of major central bank policy decisions dominates foreign exchange bourses this week. The Federal Reserve takes center stage on Wednesday, followed by the Bank of England on Thursday and the Bank of Japan on Friday - a sequence poised to reshape global currency flows heading into the fourth quarter.

Financial markets are currently discounting an 86% probability that the Fed will raise its benchmark borrowing rate by 25 basis points at its Sept. 15-16 meeting, according to CME FedWatch.

The repricing follows Friday’s U.S. consumer price index report, which saw headline inflation hold firm at 3.4% and core month-on-month CPI tick up to 0.3%, briefly sending the 10-year Treasury yield past the 5% threshold. Swaps traders are also building in strong odds of a follow-up Fed rate hike in December.

Across the Pacific, attention centers on Tokyo, where the Bank of Japan is widely expected to deliver a 25-basis-point interest rate increase on Friday to bring its policy rate to 1.25%.

Expectations of faster BOJ tightening, structural capital repatriation by domestic institutional allocators, and the lingering shadow of Tokyo’s record $96.4 billion joint currency intervention have prompted speculators to flip net long on the yen for the first time since February.

Adding fuel to the hawkish central bank trajectory, Brent crude jumped another 3% on Monday to near $112 a barrel after fresh strikes on Saudi Arabian pipeline infrastructure and Houthi advances in the Red Sea exacerbated Persian Gulf supply bottlenecks.

(Roushini Nair contributed reporting)