The Japanese yen extended its rally to a fresh seven-month high, with the dollar subdued as traders positioned ahead of the upcoming US consumer price index report. At the same time, oil prices rose on concerns that the conflict in the Middle East could disrupt supply for longer than expected.
The combination hit US equity futures. Dow futures slipped as traders weighed both rising oil prices and bets that the Federal Reserve could still raise rates, a scenario that would tighten financial conditions further. The moves show two different pressures working on markets at once: a weaker dollar typically eases financial conditions, while higher oil and rate-hike bets tighten them.
What happens next depends heavily on the CPI print. A hotter-than-expected inflation number would likely reinforce the case for a Fed hike and add to pressure on futures, while a soft read could ease both the dollar weakness and the rate-hike bets simultaneously.