Dollar Climbs Amid Safe-Haven Demand, Oil Price Surge

The dollar strengthened against the euro, yen, and Swiss franc on Monday, buoyed by rising energy prices and increased demand for safe-haven assets. This surge followed reported U.S. and Israeli strikes in Iran, escalating concerns about a prolonged conflict in the Middle East.

The dollar index, measuring the U.S. currency against other major currencies, rose 0.68% to 98.31, reaching its highest level since January 23 at 98.566.

Investors are closely monitoring shipping developments in the Strait of Hormuz, which have been disrupted due to the Iranian response to the attacks.

The Swiss National Bank stated on Monday that it is prepared to intervene in foreign exchange markets following the outbreak of conflict in the Middle East.

The euro fell 0.82% to $1.1719, hitting its lowest level since January 22 at $1.1698.

The yen weakened 0.69% to 157.13 against the dollar, earlier reaching its lowest point since February 9 at 157.25 against the U.S. currency.

The Australian dollar, sensitive to risk, initially fell 1.2% before paring losses to 0.60%, trading at $0.7025.

The offshore yuan declined 0.25% to 6.8861 against the dollar, as the People's Bank of China lowered the local currency's daily fixing to curb its rise against the dollar. China is a major energy importer and a key buyer of Iranian oil.

Tho Lan Nguyen, head of foreign exchange and commodity research at Commerzbank, noted the oil market's reaction as the most significant development.

Analysts at Barclays estimated that the dollar could rise between 0.5% and 1% for every 10% increase in oil prices, arguing that the escalation in Iran favors the dollar through increased energy prices and risk aversion.

A sharp and sustained rise in oil prices would significantly harm the economies of Japan and the Eurozone, which heavily rely on crude oil imports. The United States, being a net exporter of crude for nearly a decade, would be relatively insulated.

The Swiss franc decreased 0.30% to 0.9116 against the euro after reaching an 11-year high at 0.9028. It also fell 1.10% to 0.7775 against the dollar, remaining close to its 10-year high of 0.7604 reached in late January.

Markets are also anticipating a potential tightening of monetary policy by the European Central Bank. Traders have reduced their bets on future interest rate cuts, now expecting less than a 20% chance of monetary easing in December, compared to approximately 40% on Friday.

Savage, a market expert, indicated that an energy supply shock poses serious challenges to the Bank of Japan and could disrupt upcoming spending plans that require substantial financial compensation.