SINGAPORE - The dollar rallied again on Monday, advancing to its strongest level against the euro in roughly three months as oil prices jumped past $100 a barrel and equity markets retreated amid worries that sustained fighting in the Middle East could disrupt energy flows.
Early in the Asia trading session the dollar traded at $1.1525 versus the euro, representing a 0.8% move higher and the firmest reading since November. The currency also climbed nearly 0.4% to 158.48 yen. Commodity-linked and cyclical currencies weakened on the repricing, with the Australian dollar down 0.7% to $0.6983 and the New Zealand dollar off 0.6% to $0.5860. Sterling slid almost 0.8% to $1.3324, and the dollar gained 0.5% against the Swiss franc.
Crude benchmarks surged in response to the regional unrest. Brent and U.S. crude futures rose to more than $108 a barrel, crossing a threshold many analysts view as high enough to weigh on global growth. The spike reflects market concern that continued hostilities could curtail supplies from the Gulf.
Market strategists highlighted the central role of oil prices in shaping broader financial conditions. "Oil remains the transmission channel into inflation expectations, rates and currency markets, with the dollars resurgence echoing the 2022 energy crisis," said Bob Savage, head of markets macro strategy at BNY. He added that the coming days would test whether investors treat the current fighting as a contained incident or begin to price in a more sustained supply interruption.
The dollar has been the go-to haven since the outbreak of war last week, recording its largest one-week gain in 15 months on that breakout. Gold, often another refuge in times of market stress, has not kept pace and broad selling extended across assets that had rallied sharply in recent periods.
Commenting on the geopolitical dynamics, Joe Capurso, Head of Foreign Exchange, International and Geoeconomics at Commonwealth Bank in Sydney, said: "The dollar benefits from its twin status as a safe-haven and energy exporter. 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 Irans offensive capabilities." Those remarks underline market expectations of further military and strategic moves that could prolong uncertainty.
The regional conflict has already had a tangible impact on energy flows. Tehran has been targeting ships in the Strait of Hormuz, the narrow waterway between its own shores and Oman that is critical for global maritime traffic, and attacking energy infrastructure across the region. As a result, roughly one fifth of global crude and natural gas supply has been suspended, according to reports circulating in markets.
Adding to supply concerns, Qatars energy minister told the Financial Times last week he expected Gulf energy producers to shut down exports within weeks under extreme conditions, a step he warned could push oil toward $150 a barrel.
Higher energy costs act like an effective tax on economic activity and can also feed into inflation. That raises the prospect that central banks might be less inclined to lower interest rates while price pressures persist.
Market reaction to U.S. data was mixed. Surprisingly weak U.S. jobs figures on Friday briefly slowed the dollar's advance and lifted expectations for rate cuts, but that effect waned on Monday as futures tied to the S&P 500 tumbled, with S&P 500 futures down 1.6%.
With crude once again above the $100 mark and the dollar at multi-month highs, investors and policymakers face a delicate balancing act between growth, inflation and financial stability as geopolitical events evolve.