Dollar Rallies on Oil Surge and Hawkish Fed Bets
The US Dollar Index (DXY) is holding gains near an over three-week high of 101.50, boosted by surging oil prices and revived Federal Reserve interest rate hike expectations.
OPEC's warning of a potential supply disruption has pushed the WTI Oil price to near $90.60, its highest level in six weeks. Higher oil prices typically fuel inflation expectations, which in turn discourage Fed officials from implementing loose monetary conditions.
The closure of the Bab el-Mandeb Strait and the Strait of Hormuz has disrupted 27% of global energy supply, with no signs of a diplomatic breakthrough between the US and Iran indicating that supply shocks could last long. President Donald Trump's warning to Iran and its Houthi allies also suggests that military action is possible.
The odds of an interest rate hike in next week's Fed meeting have risen significantly, standing at 35.8% according to the CME FedWatch tool, up from 11.8% last week.