Dollar Gains as Higher Oil Prices Damp Bets on Fed Rate Cuts

The dollar strengthened versus all its major peers as rising oil prices spurred swaps traders to dial back bets on Federal Reserve interest-rate cuts this year

Bloomberg’s gauge of the dollar rose as much as 0.7% to its highest level since early February as crude prices surged following the weekend’s strikes on Iran by the US and Israel. The inflationary impact of higher oil prices has swaps traders now pricing in about 59 basis points of Fed rate cuts this year, compared with 61 basis points on Friday.

“It’s probably an early sign that 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.

The dollar’s rally was also aided by worsening risk sentiment. S&P 500 Index futures dropped 1.5% after Iran’s national security chief said the country won’t negotiate with the US. President Donald Trump said the bombing campaign against Iran until its objectives are achieved, calling on the nation’s leaders to capitulate.

With the exception of gold, the dollar was one of the few traditional havens that pushed higher Monday, as Treasuries, the yen and Swiss franc all retreated.