Dollar Rises Ahead of Fed Meeting Amid Oil Price Surge

The US dollar has climbed to its highest level in almost two weeks against major peers ahead of the Federal Reserve and Bank of Japan meeting later this week. The dollar is rising as markets increasingly expect a 25-basis-point rate hike on Wednesday, with CME FedWatch pricing in a 92% probability of such an increase, taking rates to 3.75%-4%. This comes amid renewed gains in oil prices, which have pushed Treasury yields higher and reinforced expectations for tighter US monetary policy.

The yen has pulled back as markets look ahead to the BOJ rate decision on Friday, where policymakers are expected to raise rates by 25 basis points. The key focus will be on how strongly they signal further tightening, with the market watching for clues on whether the BOJ is prepared to maintain a faster pace of increases.

The DAX has slumped as bond yields continue to rise and oil prices surge, weighed down by concerns over supply disruptions in the Middle East. Rising oil prices are increasing inflation fears, with global bond yields rising sharply. The 10-year US Treasury yield has risen to its highest level since 2007.

Attention this week turns to three major central bank decisions: the Fed on Wednesday, followed by the Bank of England on Thursday and the Bank of Japan on Friday.