$Dollar Surges on Oil Price Spike and Fed Hike Expectations

The US dollar has reached near two-week highs due to surging oil prices and increased expectations of a Federal Reserve interest rate hike this week.

Oil prices have climbed to $107 a barrel, a four-month peak, following Yemen's Houthis attacking Saudi Arabia and Gulf-Iran talks being postponed. This added to inflation worries and drove benchmark 10-year Treasury yields above 5% for the first time since October 2023.

Economists polled by Reuters expect at least one more hike by the end of March, strengthening market conviction that the Fed will raise rates on Wednesday.

Analysts at BCA note that inflation pressures are driven by oil prices, but the broader macro picture does not warrant more hikes than currently priced in the curve. They predict 'limited hawkishness from here argues for curve steepeners and limited USD upside.'