• Brent crude remains firmly above $100 a barrel after breaching the key psychological level, as escalating tensions between Iran and the U.S. raise concerns over further disruption to Middle East energy supplies.
• The renewed oil surge is fueling fresh inflation fears and pushing global bond yields higher, with the U.S. 10-year Treasury yield reaching its highest level since 2023.
• Despite rising yields and heightened geopolitical risks, the U.S. dollar has struggled to gain meaningful support. The DXY eased to 98.73 after earlier gains.
• The Japanese yen remains one of the strongest performers, trading near a seven-month high around 153.35 per dollar as expectations for a BOJ rate hike strengthen.
• Markets are pricing roughly a 60% probability of a Fed rate hike this month following stronger-than-expected U.S. payroll data.
• The ECB is also expected to raise rates today, with investors watching closely for signals that further tightening could follow if inflation pressures remain elevated.
• U.S. PPI today and CPI on Friday will be critical for determining whether the Fed can continue tightening despite the growing risk that higher energy prices weigh on economic growth.
• Meanwhile, the Chinese yuan remains near a four-year high against the dollar, while higher energy costs have contributed to a renewed rise in Chinese producer and consumer inflation.

Personal View

The key market dynamic is no longer simply “higher oil = stronger dollar.” The combination of oil above $100, rising global yields, expectations for tighter monetary policy from the Fed, ECB and BOJ, and growing fiscal concerns is creating a much more complicated FX environment.

If U.S. inflation data comes in hot, yields could move even higher, but the dollar’s reaction will depend increasingly on whether markets see tighter Fed policy as credible or as a response to an inflationary supply shock. This makes today’s PPI and Friday’s CPI especially important for the next major FX move.