The dollar wrapped up its best week in more than a year, rallying as the ultimate safe haven amid the conflict in the Middle East and skyrocketing oil prices.
The Bloomberg Dollar Spot Index gained 1.3% this week, the best performance since November 2024. The fighting in the Middle East shows no signs of abating, boosting the price of Brent crude oil futures by nearly 30% since the US and Israel struck Iran over the weekend, and as Iran hit back around the region.
The hostilities are roiling crude production and shipping, and fanning inflationary fears for the Federal Reserve and other central banks. That’s led traders to trim bets on Fed interest-rate cuts, also boosting the dollar.
Complicating the economic backdrop, a report on Friday showed US employers unexpectedly cut jobs last month. With the focus mainly on energy prices, however, the data only briefly weighed on the dollar, which was little changed on the day, as were benchmark 10-year Treasury yields.
US non-farm payrolls decreased 92,000 last month after a strong start to the year, according to Bureau of Labor Statistics data out on Friday. The drop in payrolls partly reflected a decrease in health care employment due to strike activity.
“The market is looking through soft data in this environment, as ongoing uncertainty and fresh highs in oil are the overwhelmingly predominant drivers,” said Alex Cohen, a foreign-exchange strategist at Bank of America Corp.
Traders have piled into the dollar, which has gained against most of its global peers this week. The Canadian dollar, with its strong energy link, has held up. The euro has lost more than 1.5% in the period, highlighting Europe’s vulnerability to higher oil and natural gas prices.
“The dollar is once again demonstrating that in moments of stress, all the talk of dollar diversification and other structural overhangs takes a back seat to liquidity, yield and its unrivaled role at the centre of the global financial system,” says Brendan Fagan, macro strategist, Markets Live.
The shock to energy prices brought on by the Iran war threatens global growth and a broader rotation away from US assets, according to currency strategists at JPMorgan Chase & Co, who on Friday shifted from a bearish view on the dollar to a neutral one for the first time in a year.
A JPMorgan team led by Meera Chandan and Arindam Sandilya estimates that some two-thirds of the market’s overall net short position on the dollar have been unwound in recent days, although “some residual risk remains if market sentiment continues to deteriorate.”
Figures released on Friday showed that speculative traders are shedding bets against the US currency and are now the least bearish since January. They now hold about $12.3bn in short positions, versus some $18.9bn in the prior period, according to Commodity Futures Trading Commission data for the week through March 3.
“You’re working against a mini-wave of demand for dollar liquidity,” said Kathleen Brooks, research director at XTB. “If this carries on more, we’ll see more selling of European assets.”
