The dollar experienced a significant increase on Monday as rising oil prices prompted investors to seek cash, driven by concerns that a prolonged conflict in the Middle East could greatly impact energy supplies and negatively affect global growth. In the face of the rising dollar, both the euro and sterling experienced a decline of about 1% in Asia, while the Australian dollar and the traditionally stable Swiss franc also fell, underscoring the dollar’s dominance.
The Reuters Iran Briefing newsletter provides you with the latest updates and insights regarding the Iran war. Register here. “The U.S. dollar is receiving ample backing from conventional safe-haven factors and, of course, the U.S.’s position as a net energy exporter stands in stark contrast to that of most European nations,” stated Ray Attrill.
On Monday, the widespread market decline led to a wave of indiscriminate selling across various assets.
Equities, fixed income, and precious metals declined as market participants, unsettled by the effects of rising oil prices on worldwide inflation and economic expansion, adopted a risk-averse stance and liquidated some of their most lucrative positions. “The longer this continues, the more exponential the damage becomes in a domino effect, which is precisely what oil is now demonstrating to a market that encountered some perspectives last week suggesting that conditions could be significantly worse,” stated Michael Every. “If we find ourselves in the same situation this time next week, it could be quite alarming.” The euro was last seen down 0.9% at $1.1517, having dropped to a 3-1/2-month low earlier in the session, while sterling fell 1% to $1.3294. Against the Swiss franc, the dollar increased by 0.75% to 0.7817. The Australian and New Zealand dollars decreased by 0.77% and 0.5%, respectively.
Experts have indicated that Asia may face significant challenges from the energy price shock, owing to the region’s substantial dependence on oil and gas imports from the Middle East. The dollar was a whisker away from the 159 yen level in Asia, rising 0.55% to 158.70, and it jumped 1% against the South Korean won to 1,496.40.”The real question is how high and how long prices stay elevated – because that’s what will ultimately determine the economic fallout,” said Deepali Bhargava, regional head of research for Asia-Pacific at ING. A prolonged conflict, coupled with continued currency weakness, would feed more directly into inflation pressures across the region.” On Monday, Iran appointed Mojtaba Khamenei to succeed his father as Supreme Leader, indicating that hardliners continue to maintain a strong grip on power in Tehran, just a week into the war.
The ongoing conflict has resulted in the suspension of approximately 20% of global crude and natural gas supplies, as Tehran focuses on targeting vessels in the crucial Strait of Hormuz, which lies between its shores and Oman, while also launching attacks on energy infrastructure throughout the region. Qatar’s energy minister informed the Financial Times on Friday that he anticipates all Gulf energy producers will halt exports in the coming weeks, a decision he believes could push oil prices to $150 a barrel. Elevated energy prices function similarly to a tax and can also fuel inflation, causing concern among investors that central bankers might hesitate to lower interest rates. Unexpectedly poor U.S. jobs data released on Friday momentarily halted the dollar’s upward momentum and heightened anticipations for potential rate cuts. However, by Monday, this sentiment had diminished, with traders now factoring in less than 40 basis points of easing by year-end.