Dollar Strengthens Amid Oil Price Shock and Tariff Escalation
The US dollar strengthened on Friday due to higher US Treasury yields, which rose in response to increased oil prices and renewed global trade tensions. This has raised concerns about inflation.
The spike in Brent oil prices above $100 a barrel was triggered by the Houthis' attack on two Saudi oil tankers in the Red Sea. The Trump administration announced plans to impose new tariffs of 10% and 12.5% on goods from 60 trading partners, citing lax enforcement of forced labor bans.
Vishnu Varathan, Mizuho's head of macro strategy for Asia-Pacific, said that 'the world must be prepared for a double whammy of tariffs' due to the impact of both oil price shocks and trade tariffs. The fresh turmoil in the Middle East and renewed trade tensions sent US Treasury yields higher on inflation fears.
The benchmark 10-year yield rose to an over 18-month high above 4.7%, while the 30-year yield held well above the 5% level. Varathan also noted that 'the question about whether 30-year yields will hit 6% is not far away, and your 10-year yield at 5% may be now more a bet than a fear.'