SINGAPORE, March 4 - The U.S. dollar strengthened to its strongest level in roughly three months during early Asian trading on Wednesday as investors pulled back from the euro amid a fresh wave of Middle East tensions that has reignited concerns about sustained higher energy costs.
The euro slipped 0.1% to $1.1604, extending losses into a third consecutive day after earlier touching its weakest level since late November. That move follows data released on Tuesday showing euro zone inflation climbed by more than expected in February before the recent escalation of hostilities with Iran.
George Saravelos, global head of FX research at Deutsche Bank, summed up the immediate link between the conflict and the currency pair: "The impact of the Iran war on EUR/USD boils down to one thing: energy. There is a negative supply shock under way which represents a direct tax on Europeans that has to be paid to foreign producers in dollars."
Markets turned sharply risk-off on Tuesday as investors digested a heightened possibility of a sustained rise in inflation after Israeli and U.S. forces struck targets in Iran. The actions prompted a rush for cash assets, with stocks and bonds reacting to the prospect of broad-based price pressure driven by higher energy costs.
Global energy markets have already reflected the shock: Brent crude rose 5.4% on Tuesday to $81.96 per barrel, briefly reaching its highest intraday level since July 2024, and marking a 12% gain since Friday. European gas prices have surged about 70% since the end of last week. The changes stem from disruptions to Middle Eastern energy exports and a series of attacks that have affected shipping and energy infrastructure, closing navigation in the Gulf and prompting production stoppages from Qatar to Iraq.
The U.S. dollar index, which tracks the greenback against six major currencies, held at 99.103, near its strongest point since November 28. Against the Japanese yen the dollar was slightly softer, down 0.1% at 157.555. In offshore trade the dollar eased 0.1% to 6.9139 versus the Chinese yuan ahead of official and private sector PMI releases for February.
Other major currencies saw small moves: the Australian dollar traded down 0.1% at $0.7028 despite fourth-quarter GDP beating expectations; the New Zealand dollar fell 0.1% to $0.5886; and the British pound eased 0.1% to $1.3340.
Risk assets displayed mixed responses. Bitcoin climbed 0.7% to $68,533.21 while ether rose 1.1% to $1,990.99, reflecting modest inflows to some crypto markets even as broader risk sentiment soured.
With energy-driven inflationary pressures and episodic disruptions to supply now front of mind for investors, the dollar's relative safety and the direct dollar-denominated cost of imported energy for Europe are key near-term drivers of currency and market behaviour.