US Dollar Nears 1-Year High on Middle East War Advantage
Boosted by rising demand, the US dollar rallied against its trading pairs to its highest positions in about a year, supported by geopolitical tensions and shifting rate expectations.
The risk-off mood is evident in the foreign exchange market, where the dollar is bid as the Middle East war rages on. The dollar has seen a sharp rebound from pre-war downbeat to become a clear winner in the forex market.
However, price action across major FX pairs is becoming less convincing, with several markets stalling at key levels. Rising oil prices, driven by Middle East tensions, were flagged as a key near-term inflation driver, lifting short-term expectations, though longer-term ones stayed anchored.
With significant exposure to Europe, higher energy costs are expected to weigh on domestic and global growth, though the impact’s scale is uncertain.
The dollar index held above 100 on Tuesday and was on track to gain nearly 3% in March, supported by safe-haven demand as the protracted Middle East conflict pushed oil prices higher and stoked stagflation concerns.
FX traders maintained that the greenback is likely to remain supported in the absence of a clear de-escalation in the Middle East, several FX reports reviewed indicate.
However, there are early signs that performance could become more mixed, with several major FX pairs approaching key support and resistance levels.
The Iran war has now entered its fifth week with no signs of easing, while Tehran has effectively closed the Strait of Hormuz and threatened Red Sea shipping.
President Donald Trump warned of strikes on Iranian energy infrastructure unless Hormuz is reopened, overshadowing earlier signals of a potential deal with Iran.
Meanwhile, Federal Reserve Chair Jerome Powell said long-term US inflation expectations remain in check despite heightened Middle East uncertainties and noted that the central bank’s policy stance allows officials to assess the economic impact of the Iran war.
Federal Reserve Governor Stephen Miran on Monday continued his campaign for lower interest rates, telling CNBC that policymakers should disregard the current energy price spike unless there are signs it will have longer-lasting impacts.
“If I saw a wage-price spiral, or I saw evidence that inflation expectations are starting to pick up, then I would get worried about it,” he said during a “Squawk on the Street” interview. CBN Raises N1.7trn from OMO Bills Sales to Banks, FPIs
