Dollar's Relationship With Oil Price Remains Tightly Linked in 2026

US Dollar to Remain Linked to Oil Prices Amid Iran War

The US dollar is expected to maintain its strong correlation with the price of oil for the rest of the year, according to the latest Markets Pulse survey. The survey, conducted from May 28 to June 3 among 124 respondents, revealed that more than half of the participants predicted that the correlation between the greenback and Brent crude futures will strengthen, extending a relatively unusual pattern of the pair moving in tandem.

The ongoing war in Iran, which has now entered its fourth month, has pushed crude prices higher and concerns about the prospects for a peace deal back to the forefront. The war has had a significant impact on the global economy, with the Bloomberg Dollar Spot Index surging after its start and subsequently paring those gains as crude prices pulled back from their peak. The currency's strength has been aided by the economy's resilience, its role as a haven, and a rise in bond yields fueled in part by expectations that the Federal Reserve will start raising interest rates as soon as late this year.

The war in Iran has pushed concerns about the prospects for a peace deal back to the forefront.

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The respondents to the Pulse survey predicted that the correlation between the dollar and oil prices will be influenced by the ongoing war in Iran. The survey results also highlighted the potential impact of the war on inflation and monetary policy, with a majority of participants expecting 30-year Treasury yields to move in tandem with oil prices.

The survey participants were also asked to assign a probability to the Fed's potential moves this year. The results showed that the respondents put the highest odds - about 45% - on no change in monetary policy in 2026, with one hike taking second place with a 25% chance. Fed funds futures are pricing a roughly 60% chance of one increase by December.

The respondents to the Pulse survey predicted that the correlation between the dollar and oil prices will be influenced by the ongoing war in Iran.

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In terms of the outlook for crude prices, the survey participants on average said there's a 68% chance that front-month Brent crude futures will average more than $90 a barrel in the six months from March through August. This suggests that they don't expect a steep drop anytime soon.

The ongoing war in Iran has added to the uncertainty surrounding the global economy, with the potential for higher borrowing costs and inflation worries. The respondents to the Pulse survey highlighted the potential impact of the war on risk sentiment, with Kristine Aquino, Managing Editor, Markets Live, stating that "Pressure from oil is clearly feeding into inflation worries and prompting traders to brace for the likelihood of higher borrowing costs in coming months."

The war in Iran has also complicated the outlook for new Fed Chairman Kevin Warsh, who will lead his first FOMC meeting later this month. Warsh was historically hawkish during his tenure as a Fed governor from 2006 to 2011, but more recently shifted to a much more dovish tone, in line with President Donald Trump's repeated calls for lower rates.