SINGAPORE: The safe-haven US dollar took another leg higher on Monday, rising to a three-month peak versus the euro as oil surged past US$110 a barrel and stocks slid on worries about the effects of a protracted Middle East war on global energy supplies.
The dollar was up 0.9 per cent at US$1.1518 on the euro, its highest since November.
Risk-sensitive sterling and the Australian and New Zealand dollars fell roughly one per cent versus the greenback, while Brent and US crude futures shot shot up 20 per cent or more at their highest points.
“Oil remains the transmission channel into inflation expectations, rates and currency markets, with the dollar’s resurgence echoing the 2022 energy crisis,” said Bob Savage, head of markets macro strategy at BNY.
“The week ahead will test whether markets continue to treat the current conflict as a contained shock or begin to price a more durable supply disruption.”
The dollar, which notched its sharpest one-week rise in 15 months on the breakout of war last week, has been the most consistent safe-haven asset, as gold has faltered amid broad selling in anything that has lately made sharp gains.
“The dollar benefits from its twin status as a safe-haven and energy exporter,” said Joe Capurso, Head of Foreign Exchange, International and Geoeconomics at Commonwealth Bank in Sydney.
“We expect the Iran-US 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 dollar even gained 0.8 per cent on its fellow safe haven, the Swiss franc.
It rose almost 0.5 per cent to 158.63 yen and 1.2 per cent to 1,498.30 won.
“Asia takes the brunt of the sharp escalation in oil prices and there are few places to run and hide,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho in Singapore.
“The dollar has to be the one outperforming, given Japan and Korea’s exposures here and the sharp pain that can be expected.”
Iran on Monday named Mojtaba Khamenei to succeed his father as Supreme Leader, signaling hardliners remain firmly in charge in Tehran a week into war.
The conflict has already led to the suspension of around a fifth of global crude and natural gas supply, as Tehran targets ships in the vital Strait of Hormuz between its shores and Oman, and attacks energy infrastructure across the region.
Qatar’s energy minister told the Financial Times on Friday he expects all Gulf energy producers to shut down exports within weeks, a move he said could drive oil to US$150 a barrel.
High energy prices act like a tax and can also stoke inflation, leaving investors worried that central bankers may be reluctant to cut interest rates.
Surprisingly weak US jobs data had on Friday briefly stalled dollar gains, and raised expectations for US rate cuts, but that faded somewhat on Monday morning and US stock futures tumbled, too, with S&P 500 futures down 1.6 per cent.
