Middle East War Sends Oil Prices Soaring, Interest Rates Rising
The escalating Middle East war has sent oil prices soaring, leading to higher interest rates. The September WTI price rose by over 10% in just three weeks, a significant increase of more than 25%. This development has left markets on edge, with the dollar remaining sensitive to changes in short-term interest rates.
The Dollar Index (DXY) and December Fed funds futures contract have a strong negative correlation, at around -0.63. This means that as interest rates rise, the dollar tends to fall. Meanwhile, sterling's rolling 30-day correlation with the euro has eased to around 0.82 from its peak in May.
The Australian dollar has also seen its correlation shift, becoming slightly less tied to gold (-0.58) and more closely linked to the two-year US yield, at around -0.50. As markets navigate these changes, investors are keeping a close eye on central bank meetings scheduled for this week.