Dollar Consolidates Gains as Bond Sell-Off and Oil Volatility Persist

The US dollar is benefiting from the ongoing global bond sell-off and rising oil prices. This has allowed it to consolidate recent gains, despite some concerns about stretched valuations relative to short-term fundamentals.

Oil prices remain bid after the UN summit failed to generate optimism about a resolution in the Gulf. The Strait of Hormuz situation remains uncertain, with reports that the US and Iran are discussing a phased deal to reopen the waterway. However, market scepticism about an imminent de-escalation has led to oil price volatility.

The dollar is finding fresh support from energy prices, which could push Brent crude to $110 per barrel by the end of the month. The Fed's hawkish remarks have allowed markets to price in more rate hikes, with the 2-year SOFR up almost 20 basis points over the past 48 hours.

The EUR/USD is facing downside risks, particularly if oil prices take another sharp leg higher or US data surprises to the upside. Key support for the pair lies around 1.1320-1.1330, which could be reached quickly if these scenarios play out.