US Dollar: Tailwinds build as oil and Fed reprice – OCBC

OCBC strategists Sim Moh Siong and Christopher Wong note the US Dollar (USD) has strengthened broadly on higher Oil prices, hawkish Federal Reserve (Fed) rhetoric and softer risk sentiment. They expect the USD to appreciate by around 2%–3% by end-2026, with support versus lower-yielding currencies like the Euro (EUR) and Swiss Franc (CHF). A larger rally is seen as a tail risk tied to Oil above USD100/bbl.

USD supported by oil and Fed repricing

"Rising Middle East tensions, firmer oil prices and increasingly hawkish Fed expectations have lifted the USD. While we expect modest USD gains by end-2026, a more significant rally would likely require oil prices to move above USD100/bbl."

"The USD strengthened against almost all G10 currencies, supported by improved terms-of-trade dynamics from higher energy prices, rising US rate expectations and softer risk sentiment."

"Looking ahead, we expect the USD to grind modestly higher, appreciating by around 2% to 3% by end-2026."

"The greenback should remain supported against lower-yielding currencies such as the EUR and CHF."

"A more pronounced USD rally of more than 5% remains a tail risk and would likely require oil prices to rise above USD100/bbl."