Dollar Could Rise Without US-Iran Deal
Dollar Could Rise Without US-Iran Deal
According to MUFG Bank analysts, the dollar could strengthen further if the US and Iran fail to reach a peace deal. Inflation risks are building as the conflict pushes up energy prices. This could result in more Federal Reserve officials expressing concerns over inflation rather than growth.
Markets in Risk-Off Mode
Renewed violence in the Middle East has punctured hopes for a quick diplomatic resolution. Tickmill Group analyst Patrick Munnelly notes that markets have flipped back into risk-off mode. The iTraxx Europe Crossover index of euro high-yield credit default swaps rose 1 basis point to 268 basis points.
ECB Rate Hike Expectations
The European Central Bank is expected to raise rates in June. Capital Economics analyst Andrew Kenningham says selling-price expectations slipped in May but remained elevated. ECB policymakers previously indicated they will likely raise interest rates due to the stagflationary shock from the Iran war.
US Treasury Yields and Dollar Index Rise
Renewed escalation in the Middle East weakened hopes for a near-term peace agreement, pushing US Treasury yields and the DXY dollar index higher. Exness analyst Li Xing says oil prices rebounded as expectations for a swift diplomatic resolution receded, reinforcing inflation concerns. The two-year Treasury yield rose 2.3 basis points to 4.054%, while the 10-year yield rose 2 basis points to 4.498%.
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