MUFG’s Lloyd Chan notes that Brent Oil near US$120 and higher US Treasury yields are underpinning Dollar strength, with the Dollar holding in the 98.00–99.00 range. Fed communication and today’s US PCE inflation data are seen as key for further hawkish repricing of US rates, likely keeping the Dollar firm in the near term.

Oil and yields back US currency

"Brent crude surged to around US$120/bbl, supporting USD strength, after President Trump reportedly rejected Iran’s proposal to reopen the Strait of Hormuz."

"The US dollar remained supported in the 98.00–99.00 range, underpinned by a further rise in US yields that has reinforced the carry appeal of the dollar. The US 2-year yield climbed around 11bp to 3.95%, while the 10-year yield rose roughly 8bp to 4.43%."

"Fed messaging has further reinforced this hawkish repricing of rates. While policy rates were left unchanged as widely expected, dissent from three committee members against signalling an easing bias in policy statement highlights growing unease over inflation risks."

"From a macro perspective, today’s US PCE inflation release could keep the dollar firm. US gasoline prices have surged to around US$4.84/gallon from pre conflict levels near US$3.50, adding to near term inflation pressures."

"With markets looking for March PCE inflation to rise to around 3.5%yoy from 2.8% previously, the risk skew remains toward a hawkish repricing of US rates, keeping dollar supported in the near term."

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