NEW YORK: The dollar strengthened against the euro for a third straight day on Thursday, inching closer to its strongest levels this year as surging energy prices sparked worries about Europe’s import-dependent economy and drove investors toward the safety of the greenback.
Oil prices rose sharply as Iran stepped up attacks on oil and transport facilities across the Middle East, fueling concerns of a prolonged conflict and potential disruption to oil flows. Iran’s new Supreme Leader Ayatollah Mojtaba Khamenei on Thursday vowed to keep the Strait of Hormuz closed.
The rapid increase in energy prices poses a threat to global growth, with economists warning that a prolonged conflict in the Middle East would further amplify the economic impact.
The world’s biggest energy importers have seen their currencies post the largest losses against the dollar since the start of the US-Israeli war on Iran. The Indian rupee and Japanese yen have lost more than 1.5 percent each, while the euro and the Korean won have lost 2 percent and 3 percent, respectively.
Meanwhile, the dollar has risen by more than 1.5 percent against a basket of major currencies and is close to its highest level since November, thanks in part to its safe-haven appeal, but also because the United States is a net energy exporter.The euro was down 0.4 percent at USD1.152, not far off its lowest since November.
“A disappointing supply update from the International Energy Agency, and commitment from Supreme Leader Khamenei to keep the Strait of Hormuz closed is to blame,” Benjamin Ford, researcher at macro research and strategy firm Macro Hive, said.
The IEA on Wednesday agreed to release a record 400 million barrels of oil from strategic stockpiles, which would cover only about 20 days of supply lost due to the disruptions along the Strait of Hormuz, and will take weeks or months to reach markets.
“The main thing that matters today is gas and oil, and the euro zone is quite exposed to these things. So you see the euro selling off across the board,” Barclays strategist Lefteris Farmakis said.
A more prolonged disruption in energy markets would pile more pressure on the euro, strategists said.
“We currently see downside risk to our 1 to 3 months forecast of EUR/USD 1.16 should the Strait of Hormuz remain effectively closed for an extended period and we will be re-evaluating these forecasts over the coming week or so,” Jane Foley, head of FX strategy at Rabobank, said in a note.
Risk appetite took a further hit after Trump’s administration on Wednesday launched a new trade investigation into excess industrial capacity in 16 major trading partners, in a move aimed at rebuilding tariff pressure after the US Supreme Court struck down the centerpiece of Trump’s tariff program last month.
The pound fell 0.4 percent to USD1.3358, a little above its lowest point of the year so far. Against the yen, the dollar was 0.1 percent higher at 159.125 yen.
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