The US Dollar remained steady near a three-month peak in Asian trading on Wednesday, as investors pulled back from the Euro amid escalating Middle East tensions that raised concerns about prolonged increases in energy prices and pressured global equity markets.
The single currency declined 0.2% to $1.1590, marking a third consecutive day of losses after earlier falling to its lowest level since late November.
The drop followed Tuesday’s data showing eurozone inflation in February came in higher than expected, even before the outbreak of the Iran-related conflict.
“The impact of the Iran war on EUR/USD boils down to one thing: energy. There is a negative supply shock underway which represents a direct tax on Europeans that has to be paid to foreign producers in Dollars,” said George Saravelos, global head of FX research at Deutsche Bank.
Financial markets extended their downturn on Wednesday as mounting concerns over rising inflation weighed on stocks and bonds, following strikes by Israeli and US forces on targets in Iran that triggered a wave of risk aversion and a shift by investors toward cash.
Global oil and gas prices surged as the attacks disrupted energy flows from the Middle East. Tehran’s retaliatory actions targeting vessels and energy infrastructure have hindered navigation in the Gulf, leading to production disruptions across the region, including in countries such as Qatar and Iraq.
Brent crude rose 1.9% on Wednesday to $82.94 per barrel, reaching its highest level since July 2024 and pushing total gains to 14% since last Friday. Meanwhile, European natural gas prices have climbed 70% since the end of last week, reflecting heightened market concerns over supply disruptions.
The European Central Bank’s previously comfortable position is now being tested, and it is unlikely that the situation will stabilise in the near future. The prospect of ECB interest rate hikes represents a major threat to carry trades and could lead to a substantial expansion in eurozone government bond spreads, Reuters reports.
The British Pound declined 0.3% to $1.3323.
The Dollar index, which tracks the greenback against a basket of six major currencies, edged up 0.1% to 99.208 after previously touching its highest level since 28th November.
Against the Japanese Yen, the Dollar fell 0.2% to 157.52 Yen.
In addition, the Dollar also gained 0.1% against the offshore Chinese Yuan, trading at 6.9287 Yuan. This followed mixed February purchasing managers’ index (PMI) readings, with official data showing a decline in activity, while a private-sector survey unexpectedly exceeded forecasts.