The U.S. dollar strengthened against most major global currencies on Monday as escalating Middle East conflicts drove oil prices higher and worldwide bond market declines reduced investor appetite for risk, according to financial analysts.
The euro dropped to $1.1609 while the British pound fell to $1.3305, with both currencies declining more than 0.1% against the dollar.
The Australian dollar, which tends to be sensitive to market risk, weakened by 0.4% to reach $0.7121, while New Zealand’s currency remained relatively stable at $0.5827.
The dollar index, a measurement of the American currency’s performance against a collection of major world currencies, rose slightly to 99.393.
Energy markets saw significant movement on Monday, with Brent crude oil futures jumping more than 1% to exceed $110 per barrel. This increase followed an attack on a nuclear facility in the United Arab Emirates and apparent stagnation in efforts to resolve the U.S.-Israeli conflict with Iran.
“It appears conditions for risk and bonds are deteriorating, and conditions for the dollar rally to extend this week are ripe,” analysts at Barclays wrote in a note.
The financial experts noted that continued blockages in the Strait of Hormuz are creating additional upward pressure, with the dollar typically gaining 0.5% to 1% for every 10% increase in oil prices.
Global bond markets continued their decline with little indication of recovery, as Treasury yields remained high due to concerns that Middle East energy disruptions could accelerate inflation.
Interest rates on benchmark U.S. 10-year Treasury notes and two-year notes, which generally follow Federal Reserve interest rate expectations, reached 4.607% and 4.085% respectively, approaching their highest levels in a year.
“Near term, USD may stay better bid on dips if yields remain elevated and markets continue to price a more hawkish Fed reaction function,” Christopher Wong, FX strategist at OCBC, said in a note.
Wong explained that this week’s attention will focus on the Federal Open Market Committee’s meeting minutes and U.S. flash Purchasing Managers’ Indexes, which may provide clarity on Federal Reserve concerns about persistent inflation and whether U.S. economic activity remains strong under tighter financial conditions.
The dollar traded at 158.84 against the Japanese yen, rising 0.04% from previous U.S. levels, with continued yen weakness putting investors on watch for potential intervention.
China’s offshore yuan was trading at 6.8163 yuan per dollar ahead of Chinese economic activity data scheduled for release later Monday.
