Dollar Surges to Two-Week High as Oil Prices Reach Four-Month Peak

The US dollar rose to its highest level in two weeks on Tuesday as oil prices surged and Treasury yields hit their highest since 2007. The benchmark 10-year Treasury yield climbed to 5.0266%, the highest level since 2007, driven by higher oil prices and inflation concerns.

Oil prices held near a four-month peak after Yemen's Iran-aligned Houthis launched new attacks on Saudi Arabia and Gulf-Iran talks were postponed. Markets are now pricing in a roughly 93% chance of an interest-rate increase from the Federal Reserve this week, with CME's FedWatch tool indicating a near certainty.

Christopher Wong, an FX analyst at OCBC, said that the combination of higher oil, higher U.S. yields and weaker risk appetite helped lift the U.S. dollar broadly. However, he noted that further dollar upside will likely require the Fed to keep the door open to additional tightening.