Opinion: With escalating inflation concerns and expectations of a significant reduction in interest rate cuts, the US dollar may see its biggest gain in a year.

The escalating conflict in Iran has caused energy prices to surge and exacerbated inflation concerns, setting the stage for the dollar's strongest two-day rally in nearly a year. On Tuesday, the Bloomberg Dollar Spot Index rose 0.8%, pushing U.S. Treasury yields to a three-week high and significantly lowering the Federal Reserve's expected rate cuts this year to just 37 basis points—down from 60 basis points on Friday. Crude oil prices broke through $85 a barrel for the first time since July 2024, while European natural gas prices surged more than 40%, reaching their highest level since 2023. Dollar options and risk reversal signals turned sharply bullish, reaching their largest shift since June, as physical investors sold off long positions in the euro and pound. Most G10 currencies fell by 1% or more.