Dollar Rally Finds Fresh Support Amid Oil Price Bounce and Hawkish Fed
The US dollar is experiencing consolidation of recent gains due to rising back-end yields and risk-off sentiment, according to ING strategists Francesco Pesole and Frantisek Taborsky. The global bond sell-off continues to have a knock-on effect on foreign exchange markets.
Oil prices remain resilient, with Brent potentially reaching $110/bbl before the end of the month, which could provide further support for the dollar. The recent correction in oil prices after reports of US-Iran talks was short-lived and failed to generate optimism about a resolution in the Gulf.
The Federal Reserve's hawkish remarks have allowed markets to price in more rate hikes, with the 2-year SOFR up almost 20bp over the past 48 hours. This suggests that the dollar rally may persist despite looking stretched relative to short-term fundamentals.