The US dollar retreated slightly after a week of strong gains, but held near six-week highs as geopolitical risks and elevated Treasury yields continued to support the currency.
Persistent tensions in the Middle East remain a key driver of market sentiment, reinforcing demand for the dollar through both safe-haven flows and a stronger interest rates outlook.
Concerns that the Strait of Hormuz could remain closed for an extended period continue to place upward pressure on oil prices, sustaining fears that energy costs may fuel more inflation.
Treasury yields have responded accordingly, with benchmark 10-year yields remaining elevated at their highest level since May 2025 as markets increasingly reassess the path of monetary policy.
Recent inflation data have strengthened this narrative. Last week’s CPI and PPI releases indicated that higher energy prices are increasingly impacting the broader economy, raising concerns that inflationary pressures may prove more persistent than previously anticipated. As a result, the Federal Reserve is increasingly expected to raise interest rates next year, a notable shift in forecasts compared with earlier in the year.
Looking ahead, investors will focus on the latest FOMC meeting minutes and PMI data for further signals on economic momentum and monetary policy outlook. ADP employment figures due tomorrow could also inject additional volatility into both bond and currency markets.
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