Dollar Little Changed as Crude Prices Soar and T-note Yields Fall

The dollar index (DXY00) ended Friday nearly unchanged, supported by a 4% surge in WTI crude oil prices that raised inflation expectations and by a stock selloff boosting liquidity demand. However, gains were capped by declining T-note yields, which weakened the dollar's interest rate differentials. Mixed US economic data showed stronger-than-expected housing starts and consumer sentiment, but weaker building permits and manufacturing production. Hawkish comments from Cleveland Fed President Beth Hammack provided support. Geopolitical tensions escalated as the US launched fresh strikes against Iran for the sixth consecutive day, hitting coastal and military sites, while Iran retaliated by attacking US bases in Kuwait, Jordan, and Bahrain. Kuwait reported damage to a desalination plant and intercepted 32 Iranian drones. The euro and yen both weakened against the dollar due to surging crude prices, which negatively impact energy-importing economies. The yen's losses were limited by lower T-note yields and a Bloomberg report that the BOJ may raise its GDP forecast. The risk of yen-supporting intervention remains high as the yen trades near 39-year lows above 160 per dollar.