The US dollar returned to the upside as geopolitical fears rebounded after US President Trump’s address to the nation. The rhetoric fueled risk aversion and flows toward the dollar while oil prices surged. The uncertainty over the duration of the tensions in the Middle East and the potential for an increase in risks on the ground could continue to support the dollar as a safe-haven asset. US Treasury yields also moved higher across the curve, reflecting more concerns about the inflationary impact of the situation in the Middle East.
At the same time, better-than-expected US economic data has added to the bullish outlook. Manufacturing activity showed renewed strength, led by production gains but accompanied by rising input costs and slower deliveries, underscoring the risk of cost-driven inflation. Meanwhile, a rebound in retail sales pointed to resilient consumer demand.
Looking ahead, the upcoming non-farm payrolls report could be a critical catalyst for both the dollar and Treasury yields. If employment growth surprises to the upside, markets may price in a more hawkish stance, supporting the dollar and sustaining upward pressure on yields. Conversely, a softer labor market print could revive expectations for monetary policy easing. Though persistent geopolitical risk and swinging energy prices are likely to keep volatility elevated.
Given these dynamics, we maintain a neutral and cautious stance on currency exposure, until clearer breakouts and more definitive trend direction emerge. In this context, traders could remain on the sideline to preserve optionality and limit risks during this period of uncertainty.
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