Dollar Rallies as Oil’s Surge Curbs Bets on Fed Rate Cuts

8)872{0(yc1)i3cpiemy[9w7_media_dl_3.png BloombergArticle content(Bloomberg) — The dollar strengthened versus all its major peers as a spike in oil prices spurred traders to dial back bets on Federal Reserve interest-rate cuts this year.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentBloomberg’s gauge of the dollar rose as much as 0.8% to its highest since early February following the weekend’s US and Israeli military strikes on Iran. With the effective closure of the key Strait of Hormuz driving up oil by the most in four years, the inflationary impact has swaps traders pricing 56 basis points of Fed rate cuts this year, down from 60 basis points on Friday.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentArticle content“It’s probably an early sign that the market thinks the Fed will be less inclined to cut rates if this oil price surge is sustained and ultimately translates into higher US inflationary pressure,” said Gareth Berry, a strategist at Macquarie Group in Singapore. “This is contributing to dollar strength — on top of the risk-off tone — while at the same time causing some mild selling of US Treasuries.”Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentThe move extends a recovery in the greenback in recent weeks, after it slumped to the lowest since 2022 in January. The rally was also aided by worsening risk sentiment, with a drop in global stock markets and a rush to buy gold as a haven.Article contentUS President Donald Trump said the bombing campaign against Iran will continue until its objectives are achieved, calling on the nation’s leaders to capitulate. Iran’s national security chief said the country won’t negotiate with the US.Article contentOptions DivergenceArticle contentA look at the options market suggests the dollar move is less about classic haven demand and more about oil. Traders are betting the greenback will rise most against currencies of oil-importing nations such as the euro and pound, while the reaction against those from oil-producing nations was far more muted.Article contentArticle contentThe pound fell by as much as 1.3% to $1.3314, its lowest this year, while the euro dropped nearly 1%. By contrast the Canadian dollar and Norway’s krone barely dipped.Article contentIn a typical haven-driven rally, the dollar would strengthen across the board. So the divergence between currencies points to energy costs, not fear, as the main driver. That’s also reflected in the bond market, which slipped on Monday.Article contentThe Iran crisis may be reviving the traditional relationship between the greenback and oil, as the US is a net energy exporter. The correlation between the two turned positive on Monday for the first time in three months.Article content“The early days of the Ukraine playbook will be dusted off and used for FX and rates,” said Jordan Rochester, head of fixed income, currencies and commodities strategy in EMEA at Mizuho. “If we have oil at these levels or higher it’s a terms-of-trade shock that snaps the old USD correlations back after a year of slumber.”Article content—With assistance from Alice Atkins.Article content(Updates with pricing, options and analysts quotes.)Article contentTrending The (high) opportunity cost of paying off your mortgage early Mortgages Trump Urges Iran Leadership Change as Report Points to Talks PMN Business What's at stake for oil markets as Trump strikes Iran Oil & Gas Gulf Airlines Extend Flight Cancellations as Iran Targets Hubs PMN Business Feds to invest millions in startup accelerator to boost Canadian defence and dual-use companies Innovation Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. 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