- Dollar benefits from safe-haven status
- Energy-sensitive currencies such as euro, yen at multi-month lows
- Japan says ready to act against yen declines
March 13 (Reuters) - The U.S. dollar was on course for a second consecutive weekly gain on Friday as the war in the Middle East drove investors towards safe-haven assets, while energy-sensitive currencies such as the euro and yen slid to multi-month lows.
A sharp and prolonged rise in oil prices would severely hurt the economies of Japan and the euro area, which are heavily reliant on crude imports, while the United States would be relatively insulated, having been a net crude exporter for almost a decade.
Economists, meanwhile, remained wary of monetary tightening in the economies, where heavy reliance on fuel imports means surging energy costs are likely to weigh on growth.
The euro fell to its weakest since August, and Japan warned that it was ready to take action to protect against declines in the yen, which touched its lowest in 20 months.
With oil prices surging, the U.S. permitted the sale of some Russian petroleum products that had been sanctioned due to Moscow's hostilities in Ukraine.
Iran stepped up attacks on oil and transport facilities across the Middle East as its new Supreme Leader Ayatollah Mojtaba Khamenei vowed to keep the Strait of Hormuz's shipping lane closed.
"These statements now sound more like attempts to somehow lower the oil price again, to which the market seems to be responding less and less," said Volkmar Baur, forex strategist at Commerzbank, referring to recent remarks from the U.S. administration about a potentially swift end to the war.
Markets boosted bets on monetary tightening on both sides of the Atlantic, on expectations that rising oil prices would stoke inflation.
Brent futures rose on Friday, though the U.S. sought to ease supply concerns by issuing a 30‑day license for countries to buy Russian oil and petroleum products stranded at sea. Earlier this week, the International Energy Agency agreed on Wednesday to release a record 400 million barrels of oil from strategic stockpiles.
However, some analysts argued that emergency measures to ease oil supply disruptions may be sending a hidden negative signal to markets that world leaders see little room for quick de-escalation.
The dollar index , which measures the greenback against a basket of currencies, reached the highest level since November 28, thanks in part to its safe-haven appeal, but also because the U.S. is a net energy exporter.
The index rose 0.51% to 100.22 and was poised for a 1.4% gain this week.
EURO AT 7-1/2-MONTH LOW
The euro hit its lowest level since August at $1.1438 , down 0.62%.
Investors await the European Central Bank policy meeting next Thursday, while traders bet that surging oil prices could push the central bank to hike rates this year.
Economists said a prolonged closure of the Strait of Hormuz would be needed to justify ECB monetary tightening to counter inflation.
However, Citi argued that a couple of "insurance" hikes could not be ruled out, with the central bank potentially opening the door to that next week. Citi's base case, however, is that uncertainty warrants ECB policy inaction.
The greenback rose to its highest since January versus the Swiss Franc at 0.7894.
YEN IN INTERVENTION TERRITORY
The yen slid to 159.69 per dollar, the weakest since July 2024.
Japan is ready to take the necessary steps against yen moves that impact people's lives, Finance Minister Satsuki Katayama said on Friday, adding that she was in close contact with U.S. authorities on foreign exchange issues.
When the yen weakened toward the critical 160-per-dollar level in January, the U.S. conducted so-called rate checks that often presage intervention, helping drive a rally in Japan's currency. However, the recent reluctance by officials to talk up the currency could nudge the yen as low as 165 to the dollar, some analysts said.
"The third option (a fully joint intervention with the U.S. Federal Reserve) might be longer lasting and tap into ideas that Washington is ready to fight the recent dollar strength," said Chris Turner, head of forex strategy at ING, after arguing Japan authorities are firmly in intervention territory.
"The problem for authorities in Tokyo and Washington, however, is that the dollar/yen will not turn sustainably lower until energy prices reverse," he added.
The Australian dollar weakened 0.70% versus the greenback to $0.7027.
Reporting by Stefano Rebaudo in Milan and Rocky Swift in Tokyo; Editing by Lincoln Feast and Pooja Desai
Source: Reuters