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Dollar climbs as Iran tensions boost higher-for-longer rate bets

The Bloomberg Dollar Spot Index rose 0.3%, with traders fully pricing a September Fed hike and some targeting an increase as early as next week.

Reported · Written up by our desk · Major Pairs

The US dollar rose Thursday as intensifying Middle East tensions revived concerns about energy supply disruptions and pushed traders toward higher-for-longer interest rate expectations. LiveMint Markets reported that oil prices topped $100 a barrel, helping lift the Bloomberg Dollar Spot Index by 0.3%, on track for its best week in a month.

According to LiveMint Markets, traders fully priced a Federal Reserve rate hike in September, while some expect the Fed to move as early as next week. The report also linked the move to renewed inflation worries tied to surging crude prices and said 10-year Treasury yields hit a year-to-date peak.

LiveMint Markets cited geopolitical developments including claims by Iran-backed Houthis to have attacked commercial ships and President Donald Trump’s statement that Iran would be held responsible for further attacks. It also noted that the yen weakened to its lowest level in four decades, reaching as low as 163.99 per US dollar, while the Swiss franc fell to the lowest level in over a year and the New Zealand dollar lagged.

The outlet attributed part of the dollar strength to investors shifting back toward a more hawkish Fed outlook. LiveMint Markets also said the market is divided on the July decision, pricing roughly a 35.0% chance the Fed raises rates by a quarter point, as geopolitical risk further supports the currency.

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