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The United States dollar traded near a three-month high in Asian markets on Wednesday, while the euro weakened as escalating tensions in the Middle East drove concerns about rising energy costs and weighed on global equities.
The euro slipped about 0.2 per cent to $1.1590, marking its third straight day of losses after earlier touching its lowest level since late November.
The decline followed data showing eurozone inflation came in higher than expected in February, just before the latest escalation involving Iran.
George Saravelos, global head of FX research at Deutsche Bank, said the euro’s weakness is largely tied to energy shocks. He explained that the conflict has triggered a supply disruption, effectively imposing a cost burden on Europe, which must pay foreign energy producers more in dollars.
“The impact of the Iran war on EUR/USD boils down to one thing: energy.
“There is a negative supply shock under way which represents a direct tax on Europeans that has to be paid to foreign producers in dollars.”
Markets extended their sell-off as fears of renewed inflation spread across stocks and bonds after US and Israeli strikes on Iranian targets intensified the crisis, prompting investors to move into safer assets.
Oil and gas prices surged as the conflict disrupted energy flows from the Middle East. Iran’s retaliatory actions, including attacks on shipping and energy infrastructure, have affected navigation in the Gulf and forced production halts across parts of the region, from Qatar to Iraq.
Benchmark Brent crude rose 1.9 percent to $82.94 per barrel, its highest level since July 2024, bringing total gains since Friday to about 14 percent.
European gas prices have also climbed sharply, rising roughly 70 percent over the same period.
Analysts have warned that the situation could complicate the European Central Bank’s outlook, noting that the prospect of further rate hikes could disrupt carry trades and widen eurozone bond spreads.
The British pound fell 0.3 percent to $1.3323, while the dollar index, which tracks the greenback against a basket of major currencies, edged up 0.1 percent to 99.208 after earlier hitting its strongest level since late November.
Against the Japanese yen, the dollar dipped 0.2 percent to 157.52, but it strengthened slightly against China’s offshore yuan, rising 0.1 percent to 6.9287 following mixed economic data from China.
The Australian dollar dropped 0.6 percent to $0.6996 despite data showing stronger fourth-quarter economic growth. Analysts at Capital Economics noted that while the figures were mixed, there are still concerns that growth may be running above sustainable levels, which could influence monetary policy decisions.
The New Zealand dollar rose modestly by 0.1 percent to $0.5898.
In cryptocurrency markets, Bitcoin declined 0.4 percent to $67,776.69, while Ether slipped 0.5 percent to $1,958.81.
