Dollar Holds Near Three-Month High as Energy Fears Pressure the Euro
The U.S. dollar remained close to a three-month high during Asian trading on Wednesday, as investors moved away from the euro amid escalating tensions in the Middle East. The conflict has triggered concerns about rising global energy prices, adding pressure to financial markets and contributing to declines in global equities.
Euro Weakens as Energy Shock Hits Europe
The euro fell 0.2% to $1.1590, extending its losses for a third consecutive session after earlier touching its lowest level since late November. The decline followed economic data released Tuesday showing eurozone inflation in February exceeded expectations, even before the outbreak of the Iran conflict.
According to George Saravelos, global head of FX research at Deutsche Bank, the effect of the conflict on the EUR/USD pair is largely driven by energy dynamics.
He noted that the war is creating a negative supply shock, which effectively acts as a financial burden for Europe because the region must purchase energy from foreign suppliers priced in U.S. dollars.
Markets Slide as Inflation Fears Rise
Financial markets extended their selloff on Wednesday as concerns about rising inflation spread across stocks and bond markets. The renewed pressure followed Israeli and U.S. strikes on targets in Iran, which intensified geopolitical tensions and pushed investors toward cash and safe-haven assets.
Energy markets have reacted strongly to the escalating conflict. Oil and gas prices surged as attacks disrupted exports from the Middle East. Iran’s retaliatory strikes targeting ships and energy infrastructure have disrupted navigation in the Gulf and forced production shutdowns across several regional producers, including Qatar and Iraq.
Oil and Gas Prices Surge
Benchmark Brent crude oil rose 1.9% to $82.94 per barrel, reaching its highest level since July 2024. Since Friday, oil prices have climbed roughly 14%.
Meanwhile, European natural gas prices have surged about 70% since the end of last week, intensifying concerns about inflation and economic pressure across the eurozone.
Analysts at ING warned that the situation could challenge the current policy outlook of the European Central Bank.
They noted that the potential need for ECB interest rate hikes could threaten popular currency carry trades and potentially lead to wider spreads in eurozone government bonds.
Currency Market Moves
In other currency developments, the British pound slipped 0.3% to $1.3323.
The U.S. dollar index, which tracks the greenback against six major currencies, rose 0.1% to 99.208, after earlier reaching its strongest level since November 28.
Against the Japanese yen, the dollar declined 0.2% to 157.52 yen.
The dollar also strengthened slightly against China’s offshore yuan, gaining 0.1% to 6.9287 yuan. This movement followed mixed February PMI data, where official figures indicated slowing economic activity while private-sector data exceeded expectations.
Australian and New Zealand Dollars
The Australian dollar dropped 0.6% to $0.6996, even though economic data showed fourth-quarter GDP growth accelerated.
Economists at Capital Economics suggested that headline data may exaggerate the weakness in domestic demand. However, they added that the Reserve Bank of Australia may still worry that economic growth is running above its long-term potential.
Meanwhile, the New Zealand dollar rose 0.1% to $0.5898.
Cryptocurrency Prices
Cryptocurrency markets also showed modest declines. Bitcoin fell 0.4% to $67,776.69, while Ethereum dropped 0.5% to $1,958.81.
