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US Dollar index holds above 101 as Middle East tensions keep risk bid
OCBC says a broader conflict could push oil back above $100 per barrel, a setup that could raise volatility and revive a stronger USD.
Tensions in the Middle East, as the US and Iran continue exchanging strikes, are keeping markets focused on geopolitics, with the US Dollar Index posting gains for a fourth straight session and moving above 101.20 on Tuesday. Early Wednesday, the USD Index was consolidating above 101.00 ahead of next week’s FOMC meeting, according to FXStreet. FXStreet reports that OCBC’s base case is for a managed escalation, which they say would support FX carry trades and limit further USD gains. The bank also warned that the risk of a wider conflict has increased after three US soldiers were killed in Iran linked attacks, shifting the balance of risks for both energy markets and the dollar. In that scenario, OCBC cautioned that renewed supply shock fears could send oil prices back above USD 100 per barrel, driving higher volatility and reducing the appeal of FX carry trades while supporting a renewed USD rally. FXStreet adds that Brent reached USD 126 per barrel in late April, about 40% higher than current levels, illustrating the potential magnitude of any resurgence. Separately, crude prices were firm early Tuesday, with West Texas Intermediate trading near its highest level in over a month around $86, rising more than 1.5% on the day. FXStreet also notes that the US military announced additional strikes on Iranian military targets and that US Secretary of State Marco Rubio said Iran is not serious about talks, a backdrop that continues to influence FX and oil sentiment.
Latest closeWTI crude $87.52 ▲3.1%|Brent $94.43 ▲3.8%|Dollar index 101.12 ▼0.1%