By Konstantinos Chrysikos, Head of Customer Relationship Management at Kudotrade
Safe-haven demand and concerns about inflation continued to dominate financial markets on Monday, supporting the dollar index and lifting the 10-year Treasury yield above 4.4%, its highest level in roughly eight months. Escalating tensions in the Middle East kept risk sentiment fragile, reinforcing flows into the dollar while surging energy prices drove yields higher.
Energy disruption fears have stoked expectations that inflationary pressures will prove more durable than previously anticipated, effectively narrowing the window for Federal Reserve easing. As a result, interest rate cut expectations have faded as forecasts lean toward no changes this year and the next, a significant repricing that is simultaneously supporting the dollar and pushing yields upward.
Looking ahead, with no major economic releases shaping Monday’s session, geopolitical risk remains the dominant catalyst. While energy prices could remain elevated, further escalation would likely push yields even higher and extend the dollar’s climb. However, any decline in tensions could help ease energy prices and inflation concerns, allowing yields and the dollar to pull back.