Dollar Rises as Oil Price Surge Sparks Global Market Jitters

The US dollar climbed sharply on Monday as a spike in oil prices pushed investors toward cash amid fears that a prolonged conflict in the Middle East could disrupt energy supplies and slow global economic growth.

The stronger dollar put pressure on several major currencies during Asian trading. The euro and British pound each fell by about one per cent against the US currency. The Australian dollar and the Swiss franc also declined, showing the scale of the shift toward the dollar as investors searched for stability.

Ray Attrill, head of foreign exchange strategy at National Australia Bank, said the dollar was benefiting from its reputation as a safe-haven currency. He noted that the United States also holds an advantage as a net exporter of energy.

“The US dollar’s finding no shortage of support from traditional haven considerations and obviously, the US’ net energy exporter status in sharp contrast to most of Europe,” he said.

The sudden rise in oil prices triggered a broader sell-off in financial markets. Shares, bonds and precious metals all dropped as investors moved away from riskier assets and locked in profits from recent gains.

Michael Every, senior global strategist at Rabobank, said markets are increasingly worried about the longer-term impact of the conflict.

“The longer this goes on, the more exponential the damage becomes in a domino effect, which is exactly what oil is now showing to a market that saw some takes last week that things could be a lot worse,” he said. He warned that if the situation remained unchanged in the coming days, the consequences for financial markets could become far more severe.

By late morning in Asia, the euro was trading about 0.9 per cent lower at $1.1517 after earlier touching its weakest level in more than three months. Sterling also dropped around one per cent to $1.3294.

The US dollar gained about 0.75 per cent against the Swiss franc to trade at 0.7817. The Australian and New Zealand dollars also weakened, falling by roughly 0.77 per cent and 0.5 per cent respectively.

Analysts say Asian economies could be particularly vulnerable to rising energy costs because many countries in the region rely heavily on oil and gas imports from the Middle East.

The dollar also strengthened against several Asian currencies. It rose to about 158.70 yen, close to the 159 level, and gained roughly one per cent against the South Korean won.

Deepali Bhargava, regional head of research for Asia-Pacific at ING, said the economic impact will depend on how long energy prices remain elevated.

“The real question is how high and how long prices stay elevated because that’s what will ultimately determine the economic fallout,” she said.

Rising energy costs are often compared to a tax on economies because they increase production and transport costs. Higher oil prices can also push inflation higher, which may make central banks cautious about cutting interest rates.

Weak US jobs data released on Friday briefly slowed the dollar’s rally and increased expectations that the Federal Reserve might lower interest rates. By Monday, those expectations had eased slightly, with traders now anticipating less than 40 basis points of rate cuts before the end of the year.