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The dollar index was relatively volatile on Monday amid geopolitical uncertainty.
The geopolitical backdrop in the Middle East remained tense after renewed threats to Iranian infrastructure from President Donald Trump, although reports of a potential deal could limit the demand for the dollar. Any material progress could weigh on the currency.
At the same time, elevated oil prices and the ongoing disruption of the Strait of Hormuz could continue to fuel inflation concerns, driving Treasury yields to the upside across the curve. Rising yields could continue to fuel the dollar’s strength.
Recent economic data have boosted the dollar as well. The latest labour market report showed job creation significantly exceeding expectations, signalling resilience despite prior concerns. This combination of a firm job market and rising energy costs could anchor expectations that interest rates will remain unchanged through year-end.
Looking ahead, attention turns to key economic releases this week. The ISM Services index, FOMC minutes, and GDP data will be critical in shaping expectations. A continuation of strong activity data would likely sustain upward pressure on yields and reinforce dollar strength in the near term.
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