The dollar stabilised to a certain extent today after retreating in the prior session, but could remain relatively volatile as markets react to geopolitical developments in the Middle East.
Treasury yields were firmer following a pullback on Monday as well. While the dollar and yields receded yesterday as oil slipped, the resurgence in crude prices could drive them to the upside again.
From a technical perspective, while oil prices have been edging up since December 2025, caution is important as risks remain, unless a sustained trend above $100 is confirmed. Meanwhile, the trend could remain bullish overall, leaving short bets at risk.
As a result, traders could continue to monitor the developments in the Middle East and their impact on inflation expectations. Plans to put in place military escorts for oil tankers in the Strait of Hormuz could drive oil, the dollar, and yields down if they materialise.
While the market could react to a certain extent to the ADP job data today and PPI figures tomorrow, the focus remains on the Federal Reserve’s Wednesday decision, where a hold is expected. However, markets could respond to Chair Powell’s comments and inflation outlook under current conditions, in addition to the Fed’s economic projections.
