Dollar Hits Three-Month High as Middle East Conflict Drives Energy Prices and Market Volatility

The U.S. dollar surged to a three-month high during early Asian trading on Wednesday as escalating tensions in the Middle East pushed investors away from the euro and toward safe-haven assets. The growing conflict involving Iran has raised concerns about sustained increases in global energy prices, which are now weighing heavily on European markets and currencies.

The euro fell 0.1% to $1.1604, marking its third consecutive day of losses and touching its weakest level since late November. The decline followed new economic data released Tuesday showing that eurozone inflation rose more than expected in February, even before the latest escalation in the Iran conflict. Analysts say the rising cost of energy imports is likely to place additional pressure on the European economy.

According to George Saravelos, global head of foreign exchange research at Deutsche Bank, the impact of the Iran war on the EUR/USD exchange rate is largely driven by energy dynamics. He noted that Europe faces a negative supply shock, as higher energy prices effectively act as an economic tax paid to foreign producers in U.S. dollars.

Global financial markets turned sharply risk-off on Tuesday after Israeli and U.S. forces launched strikes on targets across Iran. The attacks intensified fears of a broader regional conflict and triggered a flight to safety among investors, boosting demand for the U.S. dollar.

Energy markets reacted quickly. Brent crude oil climbed 5.4% on Tuesday to $81.96 per barrel, reaching its highest level since July 2024 and extending gains to roughly 12% since last Friday. Meanwhile, European natural gas prices have surged about 70% since the end of last week as disruptions to Middle Eastern energy exports increased supply concerns.

Iran’s reported attacks on ships and energy infrastructure have disrupted navigation through the Gulf and forced production shutdowns across key energy producers, including Qatar and Iraq. These developments have heightened fears of prolonged supply disruptions in global oil and gas markets.

The U.S. dollar index, which tracks the greenback against a basket of six major currencies, held steady at 99.103, its strongest level since November 28. Against the Japanese yen, the dollar slipped slightly by 0.1% to 157.555 yen.

In offshore trading, the dollar also dipped 0.1% against the Chinese yuan to 6.9139 ahead of the release of China’s official and private sector purchasing managers’ index (PMI) data for February.

Commodity-linked currencies showed mild weakness. The Australian dollar fell 0.1% to $0.7028 despite stronger-than-expected fourth-quarter GDP data, while the New Zealand dollar slipped 0.1% to $0.5886. The British pound also declined 0.1% to $1.3340.

In the cryptocurrency market, Bitcoin rose 0.7% to $68,533.21, while Ethereum gained 1.1% to $1,990.99, as digital assets continued to show resilience amid broader global market uncertainty.