The U.S. dollar strengthened broadly on Monday as a sharp surge in oil prices—triggered by the escalating U.S.-Israeli conflict with Iran—pushed investors toward the safety of the greenback. Market participants are increasingly concerned that a prolonged conflict could disrupt global energy supplies and slow economic growth.
The euro declined 0.5% to $1.1564, after earlier touching a more than three-month low of $1.1505. Meanwhile, the U.S. dollar rose 0.3% against the Japanese yen, reaching a six-week high, while the British pound weakened 0.5% against the dollar.
According to Juan Perez, director of trading at Monex USA, the U.S. dollar typically benefits during periods of global uncertainty.
“The dollar often performs well as a safe-haven currency during times of geopolitical turmoil,” Perez said, adding that the currency also tends to strengthen when the United States demonstrates military strength.
Global Markets React to Rising Oil Prices
Global markets faced pressure as investors weighed the potential economic impact of rising energy costs. Stocks, bonds, and precious metals declined, reflecting concerns that higher oil prices could increase inflation and slow global economic activity.
Political developments in Iran added to the uncertainty after the country confirmed a new supreme leader, signaling that hardline leadership remains firmly in control during the ongoing conflict.
The dollar later trimmed part of its gains after a Financial Times report revealed that G7 finance ministers were expected to discuss a coordinated release of strategic oil reserves, potentially organized through the International Energy Agency (IEA).
The news briefly eased pressure in energy markets. Oil prices, which had earlier surged close to $120 per barrel, pulled back slightly. Brent crude was still up about 10% at $102.99 per barrel, after previously jumping more than 25%.
Dollar Strength May Be Temporary
Despite the recent rally, Perez warned that the dollar’s strength could prove temporary if tensions in the Middle East ease quickly.
“This conflict is unfolding at a time when the U.S. economic outlook is already uncertain,” he noted. “If the situation resolves quickly, the dollar could come under significant pressure.”
Weak U.S. labor market data released on Friday briefly slowed the dollar’s rise and increased expectations for potential Federal Reserve interest rate cuts. However, those expectations faded by Monday.
Traders are currently pricing in roughly 35 basis points of Federal Reserve rate cuts by the end of the year, compared with more than 55 basis points expected in late February.
Energy Shock Concerns Grow
In currency markets, the Canadian dollar remained relatively stable against the U.S. dollar as rising oil prices supported the commodity-linked currency. Canada, as a major oil exporter, typically benefits from higher crude prices.
Shaun Osborne, chief currency strategist at Scotiabank, noted that the Canadian dollar has recently regained its reputation as a “petro-currency.” The currency gained 0.6% against the U.S. dollar last week.
Analysts warn that Asia may be particularly vulnerable to an energy price shock, given the region’s strong reliance on oil and gas imports from the Middle East. Europe and the United Kingdom are also exposed to rising energy costs.
The U.S. dollar traded close to 159 yen, reflecting continued strength against the Japanese currency.
According to Deepali Bhargava, head of Asia-Pacific research at ING, the key question is how long oil prices remain elevated.
“A prolonged conflict combined with weaker regional currencies could increase inflation pressures across Asia,” Bhargava said.
Bitcoin Edges Higher
In the cryptocurrency market, Bitcoin rose about 3% to $69,117, although it remained close to the multi-year lows reached in early February, reflecting continued volatility in digital asset markets.
