US Dollar Soars on Rising Oil Prices Amid Middle East Tensions
The US dollar continues to build momentum as crude oil prices surge on escalating tensions in the Middle East. This has revived concerns about inflation and lifted expectations for further Federal Reserve tightening.
Crude oil prices have rallied over 40% in just three weeks, with Brent crude trading above $100 and within sight of its recent gap resistance. This has fueled fears of supply disruptions and pushed up the geopolitical risk premium in crude.
The US dollar index (DXY) is approaching a bullish extreme, but technical and macro signals suggest it may still have room to extend towards 102. The Fed funds futures currently imply a 57% probability of a rate hike in September and a 39% chance of a follow-up increase in December.
If traders are dealt a swift resolution to the conflict in the Middle East, crude oil prices could reverse lower, dragging the US dollar with them as inflation concerns ease and expectations for further Federal Reserve tightening are scaled back.