The dollar neared its best daily performance since June as 10-year Treasury yields touched 5% for the first time since 2023. ActionForex ties the move to a Brent crude rally now running on Saudi export disruption, with Rystad Energy warning of a push toward $120 a barrel.
Treasury yields hit a level unseen in decades
The US dollar came close to its best daily performance since June as 10-year Treasury yields touched the psychologically significant 5% mark. Yields last reached that level in 2023, and debt markets have not held consistently above 5% since 2007 — a period when the peak still only approached 5.3%. Yields have not stayed above the threshold for 25 years, and inflation alone can hardly explain the climb.
Spending on artificial intelligence is one driver, competing directly with the Treasury for demand in debt markets while indirectly fuelling the economy. Data centres' growing electricity demand is stoking both inflation and growth, raising the odds of tighter Fed policy.
Middle East conflict is the key driver
However, the source names the Middle East conflict as the primary force behind the rise in yields. Since it began in February, Brent crude has risen 53%, pushing up consumer prices and raising the risk of faster core inflation through second-order effects. Central banks can no longer treat the energy-price rise as temporary, and investors now expect three rate rises from the Fed by the end of next year, four from the ECB and five from the Bank of England.
Saudi pipeline closure splits the outlook
Brent's muted reaction to Saudi Arabia's closure of the East-West pipeline suggests markets still expect Riyadh to find alternatives, including reports it intends to increase flows through the Strait of Hormuz. The US Department of Energy says the pipeline will reopen shortly. The Associated Press, citing regional sources, reports it will stay out of operation for several weeks.
Rystad Energy believes that in that scenario, Brent will continue its rally toward $120 per barrel. In early September, Saudi Arabia exported around 3 million barrels a day through the East-West pipeline and a further 1 million barrels a day through the Strait of Hormuz. The removal of those 4 million barrels a day from the global market would deepen the shortage and add further upward pressure on prices.
Source: ActionForex
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