Dollar Surges Amid Middle East Tensions and Rising Energy Prices
The US dollar is experiencing its strongest weekly performance in five weeks, approaching a one-year high of 102 due to safe-haven demand and rising energy prices. The immediate catalyst remains the Middle East, with Brent crude testing $100 as US-Iran hostilities continue and Houthi attacks threaten Red Sea shipping routes.
Higher energy prices are reviving inflation concerns, reversing recent declines in rates volatility. US yields have returned to their highs of the year, influenced by an exceptionally strong labour market backdrop, with initial jobless claims falling to 187k, the lowest reading since 1969.
Renewed trade uncertainty is adding complexity, as President Trump's decision to impose fresh tariffs on over 60 countries threatens to weigh on global growth and further fragment supply chains. The main risk to the bullish USD view may not be lower yields or better risk sentiment, but a disorderly JPY-led carry unwind that leaves the dollar stronger against most currencies while still weaker against the yen.