Middle East Tensions Send Brent Prices Soaring

The US dollar's recent recovery is facing new challenges as tensions in the Middle East escalate. The conflict has led to rising geopolitical risks, which are being reflected in Brent's price action. As talks on a deal to reopen the Strait of Hormuz stall over demands rather than commitments, the oil market remains volatile.

The US inflation report due out soon is expected to show a 0.1% rise in consumer prices and 0.2% increase in core CPI month-over-month. This would indicate a move towards the Fed's target and lower the risk of rate hikes, which could be another blow to the greenback.

However, the conflict in the Middle East could have an unpredictable impact on consumer price trends. Previous forecasts by FOMC officials assumed that the conflict would soon end, but Iran has demanded reparations, the withdrawal of US troops from the region, and the lifting of sanctions, among other conditions.

Brent's price is expected to remain in the range of $80-90 per barrel as a deal to reopen the Strait of Hormuz is not a foregone conclusion. Drone attacks on oil infrastructure in Saudi Arabia and Libya are heightening the risk that the US will be forced to respond, pushing up crude prices.