Dollar Strengthens Amid High Oil Prices and Rate Hike Expectations

The US dollar continued its upward trend on Tuesday, driven by high oil prices and Treasury yields. The euro fell to a three-month low of $1.1344, while the Australian dollar plummeted after Australia's central bank raised its cash rate to 4.60 per cent. The pound also declined, nearing three-month lows.

The greenback's strength is attributed to markets pricing in meaningful rate hikes by the Federal Reserve due to a storming economy and inflation fears. This has led to Treasury yields increasing across the curve, with the two-year yield reaching its highest level in two years at 4.92 per cent.

Oil prices crept up on Tuesday, with Brent crude futures above $106 a barrel. The Japanese yen remained steady at 157.43 per dollar after giving back Monday's gains. Analysts predict further rate hikes, with Morgan Stanley forecasting the euro to fall to $1.10 by mid-2027.