Dollar rallies as oil prices jump, AI fears knock markets

The US dollar experienced a surge to a two-week high on Monday, driven by a combination of factors including rising oil prices and concerns over artificial intelligence. As tensions escalated in the Middle East, oil prices jumped, prompting investors to flock to the dollar as a safe-haven currency. The euro and British pound both saw declines against the dollar, with the euro reaching a one-month low and the pound falling 0.4% to US$1.348.

Brent crude oil prices rose 3% to US$108 a barrel, adding to the dollar's strength as global bond yields approached multi-year highs. Worries over energy supply were exacerbated by Houthi strikes targeting Saudi Arabia's oil infrastructure and attacks on ships in the region. Analysts noted that the yen weakened, erasing recent gains driven by expectations of Bank of Japan rate hikes.

The US dollar's gains were supported by market expectations of a Federal Reserve rate hike on Wednesday, with money markets indicating a 90% chance of an increase. While some analysts anticipate the Fed may temper rate hikes in an election year, the dollar's strength appears likely to persist amid rising inflation concerns.