MUFG’s Senior Currency Analyst Lee Hardman highlights a bullish breakout in the US Dollar index above its 96.000–100.00 range, supported by surging Oil prices after the Strait of Hormuz was effectively closed. MUFG expects the Dollar to stay supported while the blockage persists, as higher energy costs deepen the negative shock to global growth and weigh more heavily on other G10 currencies.

Dollar index holds bullish breakout

"The US dollar has continued to trade at stronger levels overnight after the bullish break out at the end of last week when the dollar index closed above the 96.000 to 100.00 trading range that has been in place since Q2."

"The US dollar continues to derive support from rising energy prices in response to the Middle East conflict."

"Unless supply comes back on stream soon, a higher price of oil will be required to destroy global demand to bring it back into balance with supply thereby reinforcing the negative energy price shock for the global economy."

"Recent developments have added to concerns that even if US military operations in the Middle East were to end soon, there is a high risk that Iran may continue to block the Strait to increase the economic cost which would act as a bigger deterrent for further attacks."

"However, we doubt that hawkish BoE and ECB policy updates will provide much support for the euro and pound against the US dollar given European economies are facing a bigger negative hit than the US economy from the energy price shock."

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