Dollar Surges as Oil Prices Soar Amidst US-Iran Conflict
SINGAPORE, March 9 (Reuters) – The U.S. Dollar climbed to a three-month high against the euro on Monday as oil prices surged past $100 a barrel and stock markets declined amid heightened investor concerns over a protracted conflict in the Middle East and its potential disruption to global energy supplies. The conflict has triggered a flight to safe-haven assets, bolstering the dollar’s strength.
Dollar Gains Momentum
As of early trading in Asia, the dollar had risen 0.8% to $1.1525 against the euro, reaching its highest level since November. It also gained almost 0.4% against the Japanese yen, trading at 158.48. Sterling, the Australian dollar, and the Latest Zealand dollar all experienced declines of more than 0.6% against the dollar. Brent and U.S. Crude futures jumped to over $108 a barrel, a price point that could negatively impact global economic growth.
Oil as a Transmission Channel for Inflation
“Oil remains the transmission channel into inflation expectations, rates and currency markets, with the dollar’s resurgence echoing the 2022 energy crisis,” stated Bob Savage, head of markets macro strategy at BNY Mellon. Market participants are now assessing whether the current conflict will remain contained or escalate into a more significant and lasting disruption to supply.
Safe Haven Demand and Investor Sentiment
The dollar has been the preferred safe-haven asset for investors, achieving its largest one-week increase in 15 months following the outbreak of hostilities. Gold, another traditional safe haven, has seen more limited gains amid broader selling of recently high-performing assets.
Currency Dynamics and Expert Forecasts
“The dollar benefits from its twin status as a safe-haven and energy exporter,” explained Joe Capurso, Head of Foreign Exchange, International and Geoeconomics at Commonwealth Bank in Sydney. “We expect the Iran-U.S. War to escalate before it de-escalates. Iran is incentivised to strike back to gain leverage in future negotiations to end the war. The US and Israel are incentivised to degrade Iran’s offensive capabilities.”
The Australian dollar fell 0.7% to $0.6983, and the New Zealand dollar decreased 0.6% to $0.5860. Sterling slid nearly 0.8% to $1.3324, and even the Swiss franc, another safe-haven currency, saw a 0.5% decline against the dollar.
Political Shifts in Iran
Iran announced a new Supreme Leader on Monday, signaling the continued dominance of hardliners within the Iranian government amidst the ongoing conflict with the United States and Israel.
Energy Supply Concerns and Global Impact
The conflict has already resulted in the suspension of approximately 20% of global crude and natural gas supply, as Tehran targets ships in the Strait of Hormuz and attacks energy infrastructure throughout the region. Qatar’s energy minister indicated to the Financial Times on Friday that all Gulf energy producers may halt exports within weeks, potentially driving oil prices to $150 a barrel.
Inflation and Central Bank Responses
Rising energy prices can contribute to inflation, raising concerns that central banks may be hesitant to lower interest rates. Unexpectedly weak U.S. Jobs data released on Friday briefly tempered dollar gains and fueled expectations of U.S. Rate cuts, but this effect faded on Monday morning as U.S. Stock futures declined, with S&P 500 futures down 1.6%.