Dollar Gains 1.5% as Yields Rise and Fed Turns Hawkish

The U.S. dollar, after months of trading in a narrow range, is showing signs of a potential breakout as investors anticipate a more hawkish shift from the Federal Reserve in response to persistent inflation. The currency has gained nearly 1.5 percent since late February, a period marked by heightened geopolitical tensions and rising oil prices.

The dollar index, which measures the U.S. currency against a basket of six major peers, was last trading at 99.13, just below the 101 level that has capped its trading range for roughly a year. This recent strength follows a sharp decline of nearly 11 percent in the first half of last year, after which the currency entered a prolonged period of limited movement.

A key driver behind the dollar's improved outlook is a significant rise in U.S. Treasury yields, which increases the currency's appeal to investors seeking higher returns. The benchmark 10-year Treasury yield has climbed approximately 50 basis points since the onset of the conflict involving Iran in late February. The 2-year yield, which closely tracks expectations for Federal Reserve policy, has risen nearly 70 basis points.

Investors link the rise in yields to growing inflation...