Dollar Surges as Oil Prices Hit Four-Month Peak

The US dollar reached near two-week highs on Tuesday as oil prices surged and Treasury yields increased, bolstering expectations of a Federal Reserve interest rate hike this week.

Oil climbed to $107 a barrel, nearing its four-month peak, after Yemen's Iran-aligned Houthis attacked Saudi Arabia. This added to inflation worries, driving benchmark 10-year Treasury yields above the key psychological level of 5% for the first time since October 2023.

The dollar index, which measures the greenback against a basket of currencies, was last at 99.55. Christopher Wong, an FX analyst at OCBC, noted that the combination of higher oil, higher US yields, and weaker risk appetite helped lift the US dollar broadly.

With a Fed hike now heavily priced in, further dollar upside will likely require the Fed to keep the door open to additional tightening, according to Wong. Markets see a near 93% chance of an interest-rate increase on Wednesday, which would be the first in more than three years.