Brown Brothers Harriman’s (BBH) Elias Haddad notes that the US-Iran standoff in the Strait of Hormuz is keeping Brent elevated and supporting a firm Dollar, but sees the worst of the energy shock as past. With United States (US) yields grinding higher, BBH expects interest rate differentials to keep US Dollar Index (DXY) confined within its established 96.00–100.00 range in coming weeks.

DXY seen anchored in broad range

"The US-Iran standoff over the Strait of Hormuz still has no clear endgame. Brent crude oil prices climbed for a fifth day, trading above $107 a barrel, the highest level since April 7 but below the March triple top of around $120 a barrel. Global bond yields keep grinding higher as firmer crude oil prices push up central bank rate expectations. USD is mixed near yesterday’s high."

"The energy shock persists, but the worst is likely in the rearview. First, the US extended the ceasefire indefinitely. Second, the US “Open for All or Closed to All” approach to navigation for vessels transiting the Strait of Hormuz is more likely to accelerate a reopening of that crucial waterway because shared economic pain raises the incentives for all parties to reach a workable diplomatic off-ramp."

"Interest rate differentials between the US and other major economies should continue to keep the DXY (USD index) anchored within its nearly one-year 96.00-100.00 range. The final April print of the University of Michigan consumer sentiment index is due today."

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