Dollar Strengthens, Oil Rebounds After US-Iran Negotiations Fail
The US dollar index (DXY) strengthened 0.25% to around 99.00 during the European session on Monday (April 13), supported by risk-off sentiment and renewed concerns that the Federal Reserve could raise interest rates this year. The dollar's strengthening occurred as markets assessed the chances of de-escalation as diminishing after the initial round of US-Iran talks reportedly failed.
The failure of the negotiations prompted a policy response from Washington. President Donald Trump reportedly ordered the blocking of ships entering and leaving Iranian ports starting April 13 at 10:00 a.m. (14:00 GMT). This move increased uncertainty over energy supply lines and bolstered demand for safe-haven assets.
In energy markets, oil prices recovered sharply. WTI rose nearly 8% to around US$98 per barrel, signaling a renewed supply risk premium after market tensions eased during the temporary ceasefire.
The rise in oil has the potential to revive inflation expectations and prompt a readjustment of the Fed's interest rate expectations. At the end of March, the market had priced in two interest rate hikes this year, but that scenario faded after the announcement of a two-week pause in the conflict.
The next data focus is the release of the US Producer Price Index (PPI) for March on Tuesday. Headline producer inflation is expected to rise to 4.6% (YoY) from the previous reading of 3.4%, potentially acting as a catalyst for dollar movements, yields, and monetary policy expectations. Variables being monitored by the market include the implementation of the Iranian port blockade, the direction of WTI, diplomatic developments, and the Fed's signals regarding the balance of inflation and growth risks.
Source: Newsmaker.id
