Dollar Rises as Oil Prices Rebound, Capital Flows Out of Europe
The US dollar has resumed its advance, buoyed by a rebound in oil prices and a strengthening economy. The greenback's rise is also being driven by capital outflows from Europe, which are linked to high fuel prices and escalating political risks in Germany.
Rumors of a resumption of diplomatic ties between the US and Iran had weighed on oil prices, but the emergence of new information has slightly bolstered investors' hopes for an end to the conflict. Saudi Arabia's increased exports via the Strait of Hormuz have also alleviated supply disruptions from the Gulf states.
However, despite these developments, the US and Iran remain far apart on key issues, making a breakthrough unlikely. The deteriorating economic situation in Iran is likely to make Tehran more aggressive, negatively impacting Saudi Arabia's oil exports.
The rise of diesel prices in the US has drawn attention from the press and public, but for the economy, they pose a risk of accelerating inflation. This has fueled expectations of an aggressive tightening of the Fed's monetary policy, with the probability of two further rate rises by the end of the year rising to 45%.