The Bloomberg Dollar Spot Index rose as much as 0.3% to the highest level since April 13 on Thursday, before paring. All currencies in the Group of 10 declined against the greenback with the New Zealand dollar leading losses. The tension flare-up drove oil prices higher, with Brent briefly surpassing $107 a barrel.
“Oil is grinding higher and carrying the dollar with it,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “Traders are thinking the escalating tensions over the past couple days indicate that an end to the conflict is no longer just over the horizon.”
The euro weakened as much as 0.3% to $1.1669 on Thursday as the region is very dependent on energy supplies from the Middle East.
The haven dollar advanced for a third day as US and Iran tensions grew over the Strait of Hormuz, with both sides maintaining their blockades of the critical waterway. The greenback rallied in March but lost some steam when the ceasefire was announced, since then hopes of resolving the war in the near future have nearly evaporated.
What Bloomberg Strategists say…
“If higher energy costs begin to feed more decisively into inflation expectations, tightening financial conditions and weighing on global growth, the relative resilience of the US economy should reassert itself as a source of support for the dollar.”
—Brendan Fagan, FX Strategist, Markets Live
“The US blockade and Iranian activity in the Hormuz raise the tail risks for re-escalation,” said Aroop Chatterjee, a strategist at Wells Fargo. “None of this resolves the continuing supply shock that will become more material the longer it lasts. Market complacence is being tested here.”
