Barclays PLC suggests that the U.S. dollar will remain strong in the near term, supported by elevated energy prices. However, the bank anticipates a broader weakening of the dollar as tensions in the Middle East are expected to ease in the coming months. According to their estimates, a 10% increase in oil prices could lead to a 0.5% to 1.0% appreciation of the dollar. Nevertheless, the bank stated, "Based on our latest projections, geopolitical stability over the next three months, a shift in policy focus toward the U.S. government's domestic agenda, and new leadership at the Federal Reserve could result in some degree of near-term softness."

Current market data shows Brent crude prices have risen above $115 per barrel, while WTI crude remains near $102 per barrel, providing direct support for the dollar. High energy prices not only boost inflation expectations but also enhance the dollar's appeal as a safe-haven asset, particularly amid global supply chain disruptions due to geopolitical factors. However, Barclays emphasized that once Middle Eastern tensions subside, falling energy prices will quickly erode this support. Combined with a shift in U.S. policy focus toward domestic issues and changes in Federal Reserve leadership, the risk of a mid-term dollar correction becomes more pronounced. The bank's latest forecast indicates that the euro could rise to 1.18 against the dollar next quarter, up from the current level of around 1.15, suggesting the dollar may enter a phase of relative weakness.

This outlook aligns closely with trends in global commodity markets. While high energy prices benefit the dollar in the short term, they may increase corporate costs and curb economic growth over the longer term, potentially giving the Federal Reserve more room to adopt accommodative policies. The new Fed leadership may prioritize domestic employment and growth objectives over inflation control alone, further creating conditions for dollar depreciation. Investors should remain vigilant, as any clear signs of geopolitical de-escalation could trigger a rapid decline in the dollar index, benefiting major non-U.S. currencies like the euro.

The bank added that this week's market focus will be on the Job Openings and Labor Turnover Survey, retail sales data, the Institute for Supply Management manufacturing index, and the latest March employment report. These indicators will provide critical insights into the resilience of the U.S. economy and the inflation trajectory, offering key clues for anticipating the Federal Reserve's next policy moves.