Investors are curbing their risk appetite and lifting demand for safe-haven assets as the dollar rose on Monday on escalating retaliatory threats in the Middle East conflict.
The dollar index rose 0.29% to 99.83 after Friday’s closing on its first weekly decline since the start of the war.
Inflationary effects of surging oil prices have prompted central banks to turn hawkish.
The euro sank 0.38% to $1.1526, as the yen weakened 0.22% to 159.55 per dollar. Sterling weakened 0.37% to $1.329.
The Australian dollar slid as equities sold off across Asia. The Australian dollar sank 0.95% versus the greenback to $0.6956, while New Zealand’s kiwi weakened 0.7% versus the greenback to $0.5793.
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Major equity indexes across Asia tumbled, with Japan’s Nikkei down as much as 5% at one point.
The yen weakened back toward the key 160 per dollar level.
Investors had priced in two cuts by the Federal Reserve this year before the U.S.-Israeli war on Iran began in late February.
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Hopes for de-escalation of the war were, however, dashed at the weekend, with U.S. President Donald Trump threatening to strike Iran’s electricity grid, less than a day after signalling the U.S. might be considering winding down the conflict.
Tehran also vowed to hit back at the infrastructure of its neighbours, and said that the Strait of Hormuz shipping lane for oil would remain closed.
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The head of the International Energy Agency (IEA), Fatih Birol, said the crisis is worse than the two oil shocks of the 1970s put together.
Speaking in Sydney, IEA Executive Director, Birol, warned that the current crisis poses a major threat to the global economy, surpassing the Middle East energy shocks of the 1970s.
The conflict further escalated on Monday, with Israel announcing huge strikes on Tehran, while Saudi Arabia said two ballistic missiles had been launched at Riyadh.
