Geopolitical risks and potential inflation pressures from higher oil prices support the dollar ahead of key US CPI data and Fed testimony.
The US dollar gained modestly as US-Iran tensions pushed Brent crude back to USD80, rebuilding a geopolitical risk premium. Markets are pricing in potential inflation risks from higher oil prices, which could influence Fed policy decisions.
Recent Fed signals suggest rate hikes remain on the table if inflation risks persist. June CPI data and Fed Chair testimony this week will be critical for the dollar’s direction. A softer core inflation reading could reduce expectations for further tightening.
While spillover effects on FX markets have been limited so far, sustained oil price increases may strengthen the dollar if inflation concerns escalate.