Dollar Surges as Oil Prices Soar Amid Houthi Tanker Attack
The US dollar rose by 0.35% on Thursday due to strong US interest rate differentials and safe-haven demand triggered by a Houthi missile and drone attack on two Saudi Arabian oil tankers in the Red Sea.
The 10-year T-note yield increased by 4 basis points, reaching a new 1.5-year high as oil prices surged more than 6% amid the conflict escalation.
President Trump responded to the attack by stating that he would hold Iran responsible and is considering a 'massive attack' that would be 'bigger than ever before', which is 'close to making a decision on it'. The Houthis have vowed to blockade shipping linked to Saudi Arabia, threatening oil exports from Yanbu, a Red Sea hub.
The US and Iran exchanged attacks for the 12th straight day, with the US maintaining its blockade of Iranian oil shipments in the Persian Gulf. Markets are discounting a 36% probability of a +25 bp rate hike at the next FOMC meeting on July 28-29.