Inflation concerns suppress expectations of interest rate cuts + safe-haven sentiment rises, US dollar rises to fresh high in over 1 month.

Due to the rise in oil prices prompting traders to reduce their bets on the Fed cutting interest rates this year, as well as the push from risk aversion, the US dollar strengthened against all major currencies. As of the time of writing, the Dollar Index (DXY) rose by 0.82% to 98.504, reaching its highest level since January 22nd. The inflation impact of rising oil prices has led derivative traders to currently expect the Fed to cut interest rates by about 59 basis points this year, compared to last Friday's expectation of 61 basis points. Gareth Berry, a strategist at Macquarie Group in Singapore, said, "This may be an early signal that markets believe the Fed will be less inclined to cut rates if the upward trend in oil prices persists and eventually translates into higher inflation pressures in the U.S." Worsening risk sentiment also helped to push the dollar higher. Iran's national security chief stated that the country would not negotiate with the U.S. President Trump said that bombing actions against Iran would continue until their goals are achieved and called on Iranian leaders to surrender. It is worth noting that besides gold, the dollar was one of the few traditional safe haven assets that saw gains on Monday, with U.S. Treasuries, the Japanese yen, and the Swiss franc all showing declines. The drop in U.S. Treasuries reflects market concerns about energy inflation. The significantly increased security risks in the Middle East, as well as the fact that the crucial crude oil shipping route of the Strait of Hormuz has been effectively cut off, have exacerbated supply concerns and driven oil prices sharply higher on Monday. As of the time of writing, Brent crude futures rose by 9.46% to $79.76 per barrel, with a peak increase of 13% at Monday's opening; WTI crude futures rose by 8.89% to $72.98 per barrel. After the U.S. and Israel launched military attacks against Iran on February 28th, Iran announced the closure of the Strait of Hormuz, with several tanker owners and traders suspending the transportation of crude oil, fuel, and liquefied natural gas through the strait. According to data from the International Tanker Flow Monitoring System, the speed of tankers sailing in the vicinity of the Strait of Hormuz had generally dropped to zero prior to the closures, indicating a stagnant state in shipping in the region. Meanwhile, governments of several European countries have issued urgent instructions to their oil tankers flying their national flags en route to strictly avoid the Strait of Hormuz in order to mitigate the security risks arising from the current situation. The Strait of Hormuz is the most important chokepoint for Middle Eastern oil transportation, ranking first among the globally recognized eight major crude oil shipping routes. By the year 2025, over 20 million barrels per day of crude oil is transported through the Strait of Hormuz, accounting for about 26.6% of the total global maritime crude oil trade volume. Jorge Leon, an economist at energy research firm Rystad Energy, analyzed that even with alternative routes such as Saudi Arabia's East-West pipeline and the infrastructure in the United Arab Emirates, if the Strait of Hormuz were to be completely closed, it could still result in a reduction of global daily oil supply by 8 to 10 million barrels. For the global oil market, the key question is whether the tense situation in the Middle East will escalate into a long-term interruption in crude oil exports from the Gulf region. The impact on supply, first of all, is the impact of panic over supply disruptions, followed by the actual impact of supply disruptions after the panic, which will directly and rapidly reflect changes in international oil prices, with a rapid rise in international oil prices being a high probability event. If bolstered by the subsequent peak demand season, international oil prices may be expected to approach $100 per barrel. Saul Kavonic, head of energy research at MST Marquee, said preliminary signs indicate this is a larger scale attack on Iran, accompanied by retaliation that could involve multiple Gulf countries. The market initially will factor in a range of risks - from Iran losing up to 2 million barrels of exports per day, to attacks on regional infrastructure, and even the extreme scenario of a complete closure of the Strait of Hormuz. He said, "This could be three times the severity of the 1970s Arab oil embargo period, and international oil prices may soar into triple digits." In the minutes of the January meeting of the Federal Reserve released last month, Fed officials anticipated inflation heading towards 2%, but the pace and timing of the decline remained uncertain. Most officials present warned that progress in inflation easing towards the 2% target may be slower and more uneven than generally expected, and the risk of inflation remaining above the target cannot be ignored. Some officials also suggested that sustained demand pressure could keep inflation at elevated levels. Now, the rise in oil prices may further delay the pace of U.S. inflation easing and make it difficult for the Fed to cut rates.