The dollar index advanced to a certain extent on Monday as concerns about the geopolitical situation in the Middle East escalated.
President Donald Trump’s announcement of a US naval blockade of the Strait of Hormuz after weekend talks with Iran failed affected sentiment amid concerns about the fragile ceasefire, reigniting demand for the dollar.
The breakdown in diplomatic efforts drove oil prices sharply higher again and reinforced inflationary risks.
In response, Treasury yields rose across the curve, as investors reassessed the likelihood of sustained price pressures and a more cautious Federal Reserve stance, which has supported the dollar.
However, the dollar and Treasury yields could remain sensitive to any new efforts to advance a diplomatic solution in the coming days and could come down if another round of talks materialises. Looking ahead, markets will also closely monitor upcoming producer price data, labour market indicators, and speeches from Federal Reserve officials, which could be critical in determining expectations for the Fed’s monetary policy path.
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