The US dollar was relatively stable today, with continued safe-haven demand tied to ongoing tensions in the Middle East lending support to the currency.
The resulting upside pressure on oil prices could continue to fuel inflation concerns, pushing Treasury yields higher.
Elevated energy costs could reinforce the expectations that the Federal Reserve could raise interest rates.
Cleveland Fed President Beth Hammack added to this view on Friday, joining a growing number of policymakers who argue rates may still need to rise to contain persistent inflation. Despite the weaker-than-expected inflation figures published last week, the Fed is still expected to increase interest rates before year-end. The latter could support the dollar and yields.
Attention now turns to this week’s labour market data, which could help clarify the interest rate outlook ahead of the Federal Reserve’s meeting at the end of the month. Alongside ongoing developments in the Middle East, this data is likely to play a crucial role in shaping the dollar’s direction in the near term. If the job market data shows signs of weakness, the prospect of a tighter monetary policy could recede, weighing on yields and the currency.
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