The dollar hovered near a three-month peak in Asian trading on Wednesday, as traders pulled back from the euro amid escalating Middle East tensions that fueled concerns over persistently higher energy costs and battered global equities.
The euro edged down 0.2% to $1.1590, marking a third straight day of losses after earlier sliding to its weakest level since late November. The decline followed Tuesday’s data showing euro zone inflation rose more than anticipated in February, even before the outbreak of the Iran conflict.
According to George Saravelos, global head of FX research at Deutsche Bank, the Iran war’s effect on EUR/USD ultimately centers on energy. He noted that Europe is facing a negative supply shock that effectively acts as a tax, transferring income to overseas energy producers and increasing demand for dollars.
Markets extended their downturn on Wednesday as mounting inflation fears spread across stocks and bonds. Intensified strikes by Israeli and U.S. forces on Iranian targets triggered a flight to cash, further weighing on risk assets.
Oil and gas prices have surged as attacks on Iran disrupt Middle Eastern energy exports. Tehran’s countermeasures targeting shipping lanes and energy infrastructure have halted navigation in the Gulf and led to production suspensions from Qatar to Iraq.
Benchmark Brent crude climbed 1.9% to $82.94 a barrel—its highest level since July 2024—bringing total gains since Friday to 14%. Meanwhile, European gas prices have soared 70% since the end of last week.
ING analysts noted in a research report that the ECB’s previously comfortable position is now under pressure, adding that a quick resolution appears unlikely. They warned that the prospect of rate hikes from the European Central Bank could threaten carry trades and lead to a sharp widening in eurozone government bond spreads. Sterling weakened 0.3% to $1.3323.
The U.S. dollar index, which tracks the greenback against six major peers, rose 0.1% to 99.208 after earlier touching its highest level since November 28. The dollar slipped 0.2% against the yen to 157.52.
In offshore trading, the U.S. currency gained 0.1% versus the Chinese yuan to 6.9287, following mixed February PMI readings. Official data pointed to a contraction in activity, while a private survey significantly exceeded expectations.
The Australian dollar dropped 0.6% to $0.6996, despite figures showing stronger fourth-quarter GDP growth. Analysts at Capital Economics suggested the headline data may exaggerate weakness in private demand, noting that although details were mixed, the Reserve Bank of Australia is likely to remain wary that economic growth is still running above its sustainable pace.
The New Zealand dollar edged up 0.1% to $0.5898. In cryptocurrencies, bitcoin declined 0.4% to $67,776.69, and ether lost 0.5% to $1,958.81.
Sources: Reuters
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