The US dollar held near a two-week high on Tuesday as surging oil prices pushed Treasury yields higher and strengthened expectations that the Federal Reserve will raise interest rates this week.
The dollar also benefited from weaker risk appetite after stock markets came under pressure, particularly technology shares, following calls from industry leaders for slower artificial intelligence development, per Reuters.
The dollar index, which measures the greenback against a basket of major currencies, was last at 99.55.
Christopher Wong, FX analyst at OCBC, said higher oil prices, rising US yields and weaker risk appetite had supported the dollar broadly.
“The combination of higher oil, higher U.S. yields and weaker risk appetite helped lift the U.S. dollar broadly,” he said in a note.
Markets are now pricing in about a 93% chance of a Fed rate increase on Wednesday, according to CME’s FedWatch tool. It would be the first increase in more than three years.
Oil prices climbed to around US$107 a barrel following a Houthi attack on Saudi Arabia and the postponement of planned talks between Gulf states and Iran. The rise in crude prices has added to concerns that inflation could remain elevated.
The benchmark 10-year US Treasury yield breached 5% in the previous session for the first time since October 2023 and was last at 4.9895%.
Wong said further gains in the dollar could depend on whether the Fed signals that additional tightening remains possible after Wednesday’s expected hike.
The euro eased to US$1.1538 while sterling slipped to US$1.3494.
The yen weakened around 0.2% to 154.72 per US dollar ahead of an expected Bank of Japan rate hike on Friday.
Markets are also pricing in another Fed rate increase by the end of March, reversing expectations of a prolonged pause after recent data showed stronger-than-expected inflation.
Meanwhile, the New Zealand dollar and Australian dollar both slipped around 0.1% to US$0.5769 and US$0.7133 respectively, while the offshore yuan was little changed at 6.708 per US dollar.
