Dollar Steadies Near Two-Week High as Middle East Hostilities Drive Oil Prices Higher

The US dollar held steady near its two-week high on Wednesday as hostilities in the Middle East drove oil prices higher, reviving inflation concerns and adding upward pressure on bond yields.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.11% to 99.79, its highest point since August 17.

Oil prices surged after the US launched airstrikes on Iran, prompting Iranian retaliation in the most serious escalation in weeks. Brent futures climbed 0.75% to $95.36 a barrel and U.S. West Texas Intermediate (WTI) crude rose 0.41% to $90.62.

The yield on the benchmark U.S. 10-year note reached its firmest since November 2023, rising to 4.812%, before retreating to 4.804%. Japan's benchmark 10-year yield extended its rally to 3.01% after reaching a three-decade milestone of 3%.

Market strategists pointed out that higher yields drive investors to buy safe-haven currencies, including the US dollar, while undermining riskier assets like equities. The New Zealand dollar slumped 1.01% against the greenback to $0.5844 after the country's central bank raised its official cash rate by 25 basis points.