Dollar Rallies on Energy Upside, Gilt Leg a Wildcard

The US dollar has strengthened against all G10 currencies as yields rally on continued energy upside.

This move is attributed to the established energy-shock playbook, where strikes on shipping in the Strait of Hormuz lead to a bid for the dollar as both a safe haven and relative energy self-sufficiency trade.

The distinguishing feature here is that the channel is running through yields rather than pure risk aversion, which historically has been the stickier variant for the dollar. This means that even if tanker incidents prove isolated, an energy-driven rate repricing can persist as long as benchmarks stay elevated.

However, there are some caveats to consider. The gilt leg is its own case, with a 10-year yield trading well above the fiscal watchdog's assumption reviving the debt-sustainability framing that has periodically turned UK yield spikes from sterling-supportive to sterling-negative.