Dollar Rises on Haven Bid, Oil as Iran War Rips Across Markets

The dollar strengthened against every major currency Monday as a deepening war in the Middle East pushed oil prices above a barrel and boosted demand for havens.

Demand for the greenback surged as crude markets faced the prospect of increased production curbs and the US threatened to deepen the conflict with Iran, denting risk sentiment. Meanwhile, Iran a new leader and its armed forces suggested they had the capacity for sustained high-intensity war.

The Bloomberg Dollar Spot Index climbed 0.5%, extending last week’s 1.3% gain. The Swedish krona, euro and Danish krone led losses , while the South African rand and Mexican peso dropped the most among major emerging market currencies.

“The dollar has been seen as the ultimate safe-haven due to its liquidity, while also being buoyed by the rise in oil prices,” said Matthew Ryan , head of market strategy at financial services firm Ebury. “We favor continued upside in the dollar so long as the war drags on without an immediate end in sight.”

The surge in oil prices has fanned inflationary fears for the Federal Reserve and other central banks, leading traders to trim bets on interest-rate cuts that had weighed on the US currency. The greenback is also benefiting from America’s position as the world’s oil producer.

The dollar has been one of the few traditional havens that have offered investors refuge as conflict in the Gulf region roiled markets. Treasuries, the yen, the Swiss franc and gold have come under pressure while the dollar has rallied.

The yen weakened again Monday, falling about 0.4% in early Tokyo trading. The Japanese currency is now trading close to levels that could prompt market speculation over possible intervention by authorities.

“How much higher the dollar will go from here depends on the depth and duration of the conflict which remains highly uncertain,” said Carol Kong , strategist at Commonwealth Bank of Australia. “With the war likely to escalate further before it de-escalates, the dollar clearly has further upside.”