The dollar rises as the conflict in the Middle East drives oil prices above $110 per barrel.

The U.S. dollar, regarded as a safe haven, ascended further on Monday, reaching a three-month high against the euro as oil prices above $110 per barrel and equities declined over concerns regarding the impact of an extended Middle East conflict on global energy supply.

The dollar increased by 0.9% to $1.1518 against the euro, reaching its best level since November.

Risk-sensitive sterling, along with the Australian and New Zealand dollars, declined almost 1% against the U.S. dollar, whilst Brent and U.S. petroleum futures surged by 20% or more at their peak.According to Bob Savage, head of markets macro strategy at BNY, oil continues to serve as the conduit for inflation expectations, interest rates, and currency markets, with the dollar’s rebound reflecting the energy crisis of 2022.The upcoming week will determine if markets persist in regarding the ongoing unrest as a localized disturbance or start to account for a more sustained supply disruption.

The dollar, which experienced its biggest significant one-week increase in 15 months following the outbreak of hostilities last week, has shown to be the most reliable safe-haven asset, while gold has declined amidst widespread selling of assets that had recently appreciated sharply.According to Joe Capurso, Head of Foreign Exchange, International and Geoeconomics at Commonwealth Bank in Sydney, the dollar derives advantages from its dual role as a safe-haven asset and energy exporter.We anticipate the Iran-U.S. conflict to intensify prior to any reduction in hostilities. Iran is motivated to retaliate in order to enhance its bargaining position in forthcoming discussions to conclude the conflict. The United States and Israel are motivated to diminish Iran’s offensive capabilities.

The dollar appreciated by 0.8% against its counterpart, the Swiss franc.

It increased nearly 0.5% to 158.63 yen and 1.2% to 1,498.30 won.Asia bears the primary impact of the significant surge in oil prices, with limited options for refuge,” stated Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho in Singapore.The dollar must be the outperformer, considering Japan and Korea’s vulnerabilities and the significant distress anticipated.

On Monday, Iran appointed Mojtaba Khamenei to succeed his father as Supreme Leader, indicating that hardliners continue to maintain control in Tehran a week into the conflict.

The confrontation has resulted in the suspension of around 20% of world crude and natural gas supplies, as Tehran targets vessels in the crucial Strait of Hormuz between its territory and Oman, and assaults energy infrastructure throughout the region.

The energy minister of Qatar informed the Financial Times on Friday that he anticipates all Gulf energy producers to cease exports within weeks, a decision he asserted may elevate oil prices to $150 per barrel.

Elevated energy prices function as a tax and may also exacerbate inflation, causing apprehension among investors on the potential hesitance of central bankers to reduce interest rates.

Unexpectedly poor U.S. employment figures on Friday momentarily hindered dollar appreciation and heightened anticipations for U.S. interest rate reductions; however, this effect diminished slightly by Monday morning, leading to a decline in U.S. stock futures, with S&P 500 futures falling by 1.6%.