US Dollar: Constructive outlook as Oil risks build – OCBC

OCBC’s Sim Moh Siong and Christopher Wong note renewed Middle East tensions and higher Oil prices are lifting the US Dollar (USD) and global bond yields. They expect the USD to appreciate by 2–3% in 2H26 versus lower-yielding currencies like the Euro (EUR), Japanese Yen (JPY) and Swiss Franc (CHF), with a larger rally contingent on a sharper Oil spike or US overheating.

Geopolitics and energy underpin Dollar

"We continue to expect the USD to appreciate by 2-3% in 2H26 and remain constructive on the currency against lower-yielding peers, including the EUR, JPY and CHF."

"A more significant move of over 5% remains a tail risk and would likely require either oil prices rising above USD100/bbl or renewed signs of US economic overheating, such as falling unemployment and firmer medium-term inflation expectations, rather than a soft-landing outcome."

"At around USD78/bbl, Brent crude remains below levels that would challenge our view that last quarter's energy shock is fading. However, a further rise in energy prices could trigger broader USD strength."

"The latest FOMC minutes contained few surprises and reinforced the hawkish tone of post-meeting communications. The shift to scenariobased policy outlooks is likely the most meaningful change from the minutes."

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