The dollar rose against other major currencies on Monday as inflation fears resurfaced following a surprise announcement by major oil producers to cut production targets even further, with traders betting the Federal Reserve will need to raise interest rates again at its next meeting.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, announced production goal cuts on Sunday, causing oil prices to rise by around 8% in early Asian trade on Monday. Brent oil was last selling at $84.12 per barrel, a 5.3 percent increase.
OPEC+ was anticipated to adhere to existing cuts of 2 million barrels per day until the end of 2023 at a gathering on Sunday, but instead declared additional production cuts of around 1.16 million bpd.
“A higher oil price will put pressure on global inflation, and if we assume the banking turmoil continues, markets will increasingly focus on the inflation outlook,” Mohamad Al-Saraf, Associate, FX and Rates Strategy at Danske Bank, said.
Markets now estimate that the Fed will raise interest rates by a quarter point in May, up from around 50% on Friday. However, by the end of the year, cutbacks of 40 basis points are expected.
Danske Bank’s Al-Saraf continued, “With oil prices rising, it could be a trigger to reverse Fed rate cuts pricing.”
The dollar increased 0.5 percent to 133.57 Japanese yen after earlier reaching its best level since March 17. The euro was last down 0.1 percent to $1.0835 after striking a one-week low of $1.0788 earlier in the session.
The dollar increased 0.3 percent against the Swiss franc while sterling fell 0.1 percent to $1.2317 on the day.