The dollar jumped Thursday as intensifying conflict in the Middle East sparked concerns over energy supply disruptions, fueling expectations that interest rates will stay higher for longer.
The Bloomberg Dollar Spot Index rose 0.3%, poised for the best week in a month as oil prices topped $100 a barrel, increasing the likelihood of the Federal Reserve raising interest rates. Traders now fully price a rate hike in September, with some seeing the central bank increasing rates as early as next week.
“Market seems to be supporting a higher-for-longer narrative,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “Increasing escalations in the Middle East are also driving some haven support for the dollar.”
The dollar jumped as surging oil prices reignited concerns over inflation. The Iran-backed Houthis claimed their first attack on commercial ships in recent months and President Donald Trump said he’ll hold Iran responsible for any further attacks. Yields on benchmark 10-year Treasuries hit a year-to-date peak.
“With investors leaning back toward a higher-for-longer Fed outlook, interest-rate differentials are moving in the dollar’s favor,” said Nathan Thooft, a senior portfolio manager at Manulife Investment Management. “Geopolitical risk is likely exacerbating the move as well.”
What Bloomberg Strategists Say…
“While higher crude is once again feeding into higher yields and more hawkish rate expectations, markets are pricing markedly different policy responses across central banks. That suggests oil is setting the direction, but data and central banks are determining the magnitude.”
— Skylar Montgomery Koning, macro strategist, Market Live. For the full analysis, click here.
The dollar advanced against nearly all its major peers, with the New Zealand dollar underperforming. The Swiss franc fell to the lowest in over a year, while the yen has been at its weakest level in four decades, falling as low as 163.99 per US dollar on Thursday.
Fed Chairman Kevin Warsh, who took the helm of the central bank in May, has broken with his predecessors’ practice of sharing guidance on the Fed’s likely path on rates, leaving the market divided about the July decision, pricing about a 35% chance that the Fed will raise rates by a quarter point.
“Generally over the next three months, we remain bullish the dollar,” said Marcus Jennings, a strategist at Wells Fargo. “Given the repricing of the Fed, the risk of this tactical correction lower in the dollar is diminishing.”
With assistance from Carter Johnson.
This article was generated from an automated news agency feed without modifications to text.
