Dollar rallies as oil surge revives rate-hike bets

Economy economyfuelTop News Dollar rallies as oil surge revives rate-hike bets Dolario Dasmoi Relevant News TV presenter Sarah Khalifa sentenced to death in major drug case 6 September 2026 Child benefit expanded to cover 17,000 more families 6 September 2026 Alliances become new battleground in DISY presidential race 6 September 2026 newsroom 6 September 2026 FacebookXWhatsAppEmailPrintViber By Charalambos Pissouros* & Dionysis Polychronopoulos** The US dollar strengthened against most major currencies this week as fighting between the United States and Iran escalated in the Middle East, leading to the most serious exchange of strikes in recent weeks. Oil prices surged, with West Texas Intermediate crude rising as much as 10% to above $90 a barrel amid fears of supply disruption caused by the prolonged closure of the Strait of Hormuz. The jump in energy prices also fuelled concerns that inflation could accelerate sharply, strengthening expectations that the US Federal Reserve may need to raise interest rates when it meets later this month. Hawkish comments from Fed Chair Kevin Warsh at the Jackson Hole economic symposium also played a significant role. Federal funds futures put the probability of a September rate increase at 60%, while investors are pricing in a cumulative 60 basis points of rate rises by the end of 2027. Inflation concerns also pushed US Treasury yields higher, with the 10-year yield reaching its highest level since November 2023. This time, the rise in Treasury yields appears to have been driven less by investor concern over financing the huge US debt burden and more by growing inflation fears. That may explain why the dollar has, at least for now, avoided pressure linked to concerns over currency debasement and instead posted strong gains. Investors will have more data to assess before the Federal Open Market Committee’s next decision on 11 September, including August consumer price inflation figures. A day earlier, the US Treasury is expected to at least double its buybacks of longer-dated government bonds, focusing on 10-, 20- and 30-year securities. A strong Treasury intervention, combined with consumer price data showing inflation easing, could therefore put pressure on the dollar and push expectations of a September rate rise lower again. Rising US Treasury yields and a stronger dollar pushed gold to a more than three-week low, with the precious metal briefly falling below its 200-day exponential moving average before recovering on Wednesday and Thursday. A clear break below that important moving average could open the way for a further decline towards the $4,200 area, which is seen as a support zone following the interim high recorded on 6 July. Why the yen is recovering The Japanese yen rebounded on Wednesday after Bank of Japan Governor Ueda said officials would consider raising interest rates at their September meeting, adding that he hoped they would continue moving in that direction as financial conditions remained accommodative. The yen’s gains accelerated later in the day, strengthening speculation that Tokyo authorities had carried out rate checks, which are often seen as a precursor to intervention in the foreign exchange market. With investors appearing reluctant to push the dollar-yen exchange rate above the 160.00 area, the Japanese currency continued to strengthen on Thursday. Ueda’s comments followed calls from US Treasury Secretary Bessent for decisive action and faster rate increases from the Bank of Japan. Bessent also called on the government to take further steps towards fiscal responsibility. Japan’s overnight index swap market puts the probability of a Bank of Japan rate increase on 18 September at 76%, while investors are pricing in a total of 120 basis points of increases by December 2027. However, with Japanese Prime Minister Takaichi sticking to her large-scale fiscal plans and able to influence the balance within the Bank of Japan through appointments to its board, it is difficult to see a scenario in which the central bank becomes significantly more hawkish. Fed, oil and geopolitical tensions US stocks came under pressure from a combination of heightened geopolitical risk in the Middle East, rising energy prices and higher Treasury yields, all of which increased expectations of a Fed rate rise. Despite that pressure, the S&P 500 and Dow Jones remain within reach of their record highs as corporate earnings continue to show strong growth. Corporate profits rose 52% year on year in the second quarter of 2026, compared with an initial estimate of 23% growth. Earnings are forecast to rise by 31% in 2026 and 15% in 2027. Expectations of higher interest rates are nevertheless weighing on equity valuations, particularly in sectors where valuations are already stretched. Technology stocks are especially vulnerable in a higher-rate environment. Investors are also concerned about the very high levels of corporate spending on artificial intelligence infrastructure. Nvidia estimates that spending by the five largest technology companies will reach $1.3 trillion in 2027, up from $800 billion in 2026. *Senior Market Analyst, Trading Point Market Analysis **Market Analyst, Trading Point Market Analysis Subscribe to our Newsletter Latest News TV presenter Sarah Khalifa sentenced to death in major drug case Child benefit expanded to cover 17,000 more families Alliances become new battleground in DISY presidential race Public service hiring overhaul targets two-year recruitment delays Fuel prices surge again as diesel nears record highs Turkey turns occupied north into military hub as regional tensions rise Cyprus temperatures to reach 38°C as seasonal low pressure hits Follow en.philenews on Google News and be the first to know all the news about Cyprus and the world.