The linkage between oil prices and exchange rates has weakened, with interest rate channels now dominating the movement of the US dollar.

智通财经2026/07/22 12:41

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Brent crude oil futures are approaching the $95 per barrel mark, providing some marginal support for the US dollar. However, the current correlation between oil prices and G10 currencies has dropped significantly from the wartime peak levels earlier in February this year.
Although there is a moderate positive correlation between the dollar and low-yielding currencies like the Swiss franc and the Japanese yen, this relationship has fallen sharply from notable levels seen between April and May. The market is gradually adjusting to Trump's strategy of "escalating to de-escalate," which has diminished the willingness to aggressively buy currencies linked to rising oil prices.
A more decisive transmission mechanism lies in the interest rate channel: the rolling correlation between oil prices and the US 10-year Treasury yield consistently remains above 0.4, indicating that energy prices influence exchange rates mainly by affecting inflation expectations and Federal Reserve policy paths.
Under the leadership of the new chair, Walsh, the Federal Reserve has implicitly leaned toward rebuilding inflation credibility. The inflation risks brought by rising oil prices have made policy stances more hawkish, thereby supporting the dollar through yield advantages rather than driving exchange rates via commodity currency attributes.

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