Dollar grows steadily amid crisis
The U.S. dollar showed signs of rising for a second straight week on Friday as war in the Middle East pushed investors into safe haven assets, while energy-sensitive currencies such as the euro and yen slid to multi-month lows.
A sharp and prolonged rise in oil prices would severely hit the economies of Japan and the eurozone, which rely heavily on crude oil imports, while the United States would be relatively protected as it has been a net exporter of crude oil for nearly a decade, Reuters reported.
Markets are weaker on policy
The euro fell to its lowest level since August and Japan warned it was prepared to take measures to protect against the yen, which hit its lowest level in 20 months.
As oil prices surged, the U.S. allowed sales of some Russian oil products that had been under sanctions because of Moscow’s hostile actions in Ukraine.
Iran stepped up attacks on oil and transportation facilities in the Middle East, while its new supreme leader, Ayatollah Mojtaba Khamenei, vowed to keep the shipping channel in the Strait of Hormuz closed.
“These statements now look more like attempts to somehow bring oil prices down again, to which the market seems to be reacting less and less,” said Volkmar Baur, currency strategist at Commerzbank, commenting on the U.S. administration’s recent statements about a potentially quick end to the war.
Monetary tightening
Markets have stepped up bets on tighter monetary policy on both sides of the Atlantic, expecting rising oil prices to spur inflation. Meanwhile, economists remain wary of tightening monetary policy in countries with high dependence on fuel imports, meaning a surge in energy prices is likely to weigh on economic growth.
Brent crude futures rose on Friday despite U.S. efforts to ease supply concerns by giving countries a 30-day license to buy Russian crude and refined products stranded at sea. Earlier this week, the International Energy Agency on Wednesday agreed to release a record 400 million barrels of oil from strategic reserves.
But some analysts say the extraordinary measures to ease oil supply disruptions could send a hidden negative signal to markets that world leaders see no room for rapid de-escalation.
Dollar Index
The dollar index, which measures the value of the U.S. currency against a basket of currencies, hit its highest level since Nov. 28, partly because of its appeal as a safe haven asset and also because the U.S. is a net exporter of energy.
The index rose 0.51% to 100.22 and was poised for a 1.4% gain this week.
EURO at 7.5-month low
The euro fell to its lowest level since August at $1.1438, down 0.62%.
Investors await the European Central Bank’s monetary policy meeting next Thursday, while traders believe a sharp rise in oil prices could push the central bank to raise interest rates this year.
