Dollar near weekly high as Gulf tensions lift Treasury yields
The U.S. dollar held near a one-week peak after Houthi forces blockaded Saudi Arabia, pushing oil prices toward six-week highs and driving Treasury yields up on renewed inflation fears.
The U.S. dollar index steadied at 100.96 on Tuesday, hovering near its highest level since July 15. Currency markets remained fixated on the Persian Gulf after Yemen's Iran-aligned Houthis declared a naval blockade on Saudi Arabia. This aggressive move by the militants directly threatens critical global energy shipping routes.
The escalation forced a repricing of U.S. interest rate expectations as investors anticipated potential supply shocks. Traders pushed the benchmark 10-year Treasury yield up to 4.5937 per cent, while 30-year yields held firmly above the 5 per cent mark. Markets are increasingly betting that a sustained oil spike will eventually feed through to broader consumer prices.
Oil prices swung near six-week highs as investors weighed the new Saudi blockade against a 10-day ceasefire proposal delivered to Tehran by international mediators. Strategists noted that while hopes for de-escalation remain alive, the trading environment is highly volatile until the geopolitical situation clarifies.
Against major peers, the dollar's gains were largely muted as other currencies found specific domestic support. The dollar was largely unchanged at 162.50 yen, while the euro was flat at $1.1415, bolstered by an ECB survey showing euro zone firms expect selling prices to rise more moderately. The British pound held firm at $1.3434 after new Prime Minister Andy Burnham publicly committed to strict fiscal rules.
The ECB is widely expected to keep rates unchanged at its monetary policy meeting this week. However, the sudden surge in oil prices has revived market bets for a September rate hike to the 2.25 per cent deposit rate.
Antipodean currencies benefited from local inflation dynamics. The New Zealand dollar rose 0.4 per cent to $0.5860, reaching its strongest level since early June after strong domestic inflation data reinforced expectations of further rate hikes. The Australian dollar also edged up to $0.7001.
The Canadian dollar steadied after sliding to a one-month low. This followed a U.S. decision to impose a 50 per cent tariff on a broad range of Canadian products, citing what Washington called Ottawa's "discriminatory treatment."
