Hamas-Israel war scrambles the currency outlook again

After another topsy-turvy week in financial markets, the dollar appears to be back on the front foot. In part, that probably reflects Thursday’s US CPI print, which came in a touch higher than expected. That led to a rebound in US Treasury yields, which had been falling back since last Friday, driving yield differentials back in favour of the dollar – resuming the trend over the past three months. But our sense is that the greenback’s renewed strength in large part also reflects growing economic and geopolitical uncertainty in the wake of the new war between Hamas and Israel.