The Dollar climbed to its highest level in six weeks on Tuesday as investors rotated into safe-haven assets following the latest geopolitical developments in the Middle East.
The latest economic data also provided support to the greenback.
February’s ISM Manufacturing PMI surprised to the upside at 52.4, marking a second consecutive month in expansion territory.
At the same time, the prices subindex reached its highest level since mid-2022, highlighting mounting cost pressures. Sticky inflation risks reduce the scope for near-term rate cuts and reinforce support for longer-dated Treasury yields.
The parallel rise in oil and natural gas prices amid tensions around the Strait of Hormuz further intensifies inflation concerns. Higher energy costs risk slowing the pace of disinflation, keeping core measures elevated and anchoring yields higher. Additionally, Fed cut expectations have subsided to a certain extent.
Attention now turns to today’s Fed commentary and Friday’s Non-Farm Payrolls. A robust labour reading would validate the current dollar strength, while a downside surprise could revive easing bets and test the sustainability of the rally.
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