Dollar Recovers Amid Crude Oil Price Surge

The dollar index DXY has declined by -0.02% today, but its losses were short-lived after crude oil prices surged over +6%. This sudden increase in crude oil prices raised inflation expectations and could prompt the Fed to tighten monetary policy, a move that would be supportive of the dollar.

The jump in crude oil prices followed President Trump's statement that the US will 'hit Iran hard' after a recent attack from Iran on a US base in Jordan. This heightened tensions between the two nations and led to increased demand for safe-haven assets, including the yen and gold.

However, gains in the yen are limited due to the negative impact of higher crude oil prices on the Japanese economy, as Japan imports over 90% of its energy. The yen is also pressured by weak interest rate differentials, with markets only discounting a 2% chance of a +25 bp BOJ rate hike at Friday's policy meeting.