The US dollar index was relatively volatile on Monday amid renewed concerns about the geopolitical situation in the Middle East.
Markets remained focused on the lack of progress in negotiations between Washington and Tehran, after President Donald Trump rejected Iran’s latest proposal.
The diplomatic deadlock has kept concerns over energy supply disruptions elevated, supporting higher oil prices and reinforcing inflation expectations. This pushed Treasury yields higher across maturities, underpinning the dollar.
On the macro front, Friday’s stronger-than-expected labour market data added to the support for the greenback. US nonfarm payrolls rose well above forecasts in April, signalling that the economy remains resilient despite geopolitical headwinds.
The data reinforced expectations that the Federal Reserve is likely to maintain rates unchanged this year, providing additional support to yields and the currency. Looking ahead, inflation data later this week will be closely monitored for the impact of elevated oil prices. Softer readings could weigh on yields and the dollar, while continued strength may reinforce expectations for prolonged cautious monetary policy.
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