ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note that the Dollar is drawing broad-based support as markets slowly react to escalating tensions in the Gulf. They argue USD still has room to rally, with risks skewed higher as investors remain complacent about military developments and elevated Oil prices. A return of DXY towards 101.50 is seen as consistent with current conditions.

Dollar benefits from Gulf tensions

"The FX market is gradually catching up with developments in the Gulf, where tensions still appear to be escalating, and the dollar has found broad-based support. US President Donald Trump has pledged retaliation against Iran following the killing of three US service members in Jordan, while Houthi militants are threatening a blockade of Saudi Arabia in the Red Sea."

"Brent has reached $90, still well below the spring highs, but FX markets may now be reacting less to the risk of sharp short-term spikes and more to the prospect of oil prices remaining elevated for longer. The bond sell-off and the spillover into equities reflect that shift."

"Dollar risks remain skewed to the upside today as markets continue to display a risky degree of complacency towards the military re-escalation. A move back to 101.50 in DXY looks entirely consistent with the current backdrop."

"The US calendar is light today, and the Federal Reserve remains in its pre-meeting blackout period."

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