Dollar Gains Momentum as Rising Oil Prices and Bond Selloff Weigh on Market Sentiment

U.S., May 18 : The U.S. dollar gained ground against major global currencies on Monday as escalating tensions in the Middle East pushed oil prices higher and triggered a fresh wave of risk aversion across financial markets. Investors also remained cautious amid a continuing selloff in global bonds, which kept Treasury yields near yearly highs and supported demand for the greenback.

The euro slipped to $1.1609, while the British pound weakened to $1.3305, with both currencies losing more than 0.1% against the dollar during early trading hours. Commodity-linked currencies also came under pressure, with the Australian dollar falling 0.4% to $0.7121. Meanwhile, the New Zealand dollar remained mostly steady at $0.5827.

The dollar index, which tracks the U.S. currency against a basket of six major rivals, edged slightly higher to 99.393 as investors sought safer assets amid rising geopolitical uncertainty.

Oil Prices Climb on Middle East Concerns

Crude oil prices advanced sharply after reports emerged that a nuclear facility in the United Arab Emirates had come under attack. At the same time, diplomatic efforts aimed at easing the ongoing U.S.-Israeli conflict with Iran appeared to lose momentum, intensifying concerns about regional stability.

Brent crude futures climbed more than 1%, trading above $110 per barrel. Analysts warned that prolonged disruptions around the Strait of Hormuz — one of the world’s most critical oil shipping routes — could further tighten energy supplies and add to inflationary pressures worldwide.

Market analysts at Barclays said the current environment is increasingly favourable for further gains in the U.S. dollar, particularly as investors move away from risk-sensitive assets.

They noted that every 10% increase in oil prices could potentially strengthen the dollar by 0.5% to 1%, especially if energy supply disruptions continue.

Bond Market Weakness Adds Pressure

Global bond markets also remained under strain, with investors worried that rising energy prices may slow progress in controlling inflation. U.S. Treasury yields stayed elevated, reinforcing expectations that the Federal Reserve could maintain a tougher stance on interest rates for longer than previously anticipated.

The benchmark U.S. 10-year Treasury yield stood at 4.607%, while the two-year yield traded at 4.085%, both hovering close to their highest levels in nearly a year.

Christopher Wong, currency strategist at OCBC, said the dollar is likely to remain supported in the near term if Treasury yields continue to rise and markets expect a more hawkish Federal Reserve policy response.

Markets Await Key U.S. Economic Data

Investors are now focusing on the upcoming release of the Federal Open Market Committee (FOMC) meeting minutes and the latest U.S. flash Purchasing Managers’ Index (PMI) data later this week.

The reports are expected to provide fresh insights into the Federal Reserve’s outlook on inflation and the overall strength of the U.S. economy amid tighter financial conditions.

Yen Weakness Raises Intervention Speculation

Against the Japanese yen, the dollar traded at 158.84 yen, remaining close to levels that previously prompted Japanese authorities to intervene in currency markets.

Renewed weakness in the yen has once again fueled speculation that Tokyo could step in to stabilize its currency if volatility intensifies further.

Meanwhile, China’s offshore yuan traded at 6.8163 per dollar ahead of the release of key Chinese economic activity data scheduled for later in the day.