Dollar Soars as Oil Prices Hit $100, Trade Tensions Escalate
The US dollar strengthened on Friday, reaching a three-week high against a basket of currencies as rising oil prices and trade tensions boosted inflation expectations. The U.S. Treasury yields also climbed to an over 18-month high above 4.7%, with the benchmark 30-year yield reaching its highest since February 2025 at 4.3627%. This surge in yields was driven by the escalating conflict in the Middle East, where Yemen's Houthis struck two Saudi oil tankers, pushing crude prices above $100 a barrel for the first time.
US President Donald Trump vowed 'major military punishment' for Iran and its Houthi allies, adding to the inflationary pulse. The renewed trade tensions also saw the Trump administration announce new tariffs of 10% and 12.5% on goods from 60 trading partners over allegations of lax enforcement of forced labour bans.
Analysts warn that this 'double whammy' of oil price shocks and tariffs could lead to higher inflation and a stronger dollar. 'The world must be prepared for a double whammy of tariffs, because essentially oil is a tariff... and the independent supply disruptions,' said Vishnu Varathan, Mizuho's head of macro strategy for Asia-Pacific.
The strengthening dollar was particularly harsh on the yen, which remained pinned near a 40-year low at 163.80 per dollar. The US Treasury Department has warned against excessive yen volatility and called for further interest rate hikes by the Bank of Japan.