ING’s Chris Turner notes that Gulf tensions and broadening inflation pressures are keeping investors wary of short US Dollar (USD) positions. He highlights firm short-dated US yields as markets price a stagflationary oil shock and a potentially more hawkish Federal Reserve (Fed). Turner points to US Dollar Index (DXY) upside levels and says today’s Michigan survey inflation expectations could further support the Dollar.

Gulf risks and inflation support Dollar

"For today, the uncertainty over events in the Gulf probably means investors will not want to go home short dollar balances."

"Given the absence of Federal Reserve speakers due to the blackout period and away from social media posts on the Gulf, today's US focus will be on the final release of data from the University of Michigan Consumer Sentiment Survey."

"Any upward revision here could unnerve the Fed and lift short-dated US yields and the dollar."

"We also note that the 5Y5Y USD inflation swap has risen to 2.50% from 2.40% this week – the highest since early February."

"DXY looks biased to 99.15/20, above which it could fill a gap to 99.50."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)