US Dollar Index: Conflict-driven support and rate backdrop – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes that renewed Middle East tensions are pressuring stocks and bonds while supporting the US Dollar (USD) and Oil. Haddad sees the Dollar Index (DXY) edging higher, with US-G6 two-year yield spreads consistent with DXY slightly above 102.00 and US economic outperformance keeping rate differentials supportive for the Dollar ahead of the FOMC minutes.

DXY supported by yields and risk

"Re-escalation of the Middle East conflict is weighing on stocks and bonds. Crude oil prices surged and USD inched higher. "

"The US completed yesterday a new round of offensive strikes against Iran and revoked a waiver that allowed the sale of Iranian oil in response to Iran's attacks on commercial vessels transiting the Strait of Hormuz."

"In our view, the dollar index (DXY) can edge higher. US-G6 two-year bond yields are consistent with DXY trading slightly above 102.00 and US economic outperformance should keep rate differentials supportive of the dollar."

"Recall, the FOMC left the target range for the funds rate unchanged at 3.50%-3.75% for a fourth straight meeting. The policy decision was widely expected, there was no dissent, and the FOMC statement scrapped its implicit easing bias."

"The FOMC June 16-17 meeting minutes will shed more light about the debate behind the hawkish hold (7:00pm London, 2:00pm New York)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)