Dollar Strengthens, Oil Above $100 Drives Safe Haven Flows
The US dollar strengthened against most major currencies on Monday (March 9th) as the escalating conflict in the Middle East pushed oil prices above $100 per barrel and increased demand for the US currency as a safe haven.
The Bloomberg Dollar Spot Index rose 0.7% after strengthening 1.3% last week. The gains were pared after the Financial Times reported that G7 finance ministers would discuss the possibility of jointly releasing oil from strategic reserves to curb soaring energy costs.
In the G10 group, the Swedish krona led the decline, followed by the pound and the Norwegian krone. In emerging markets, the South African rand recorded the largest decline among major emerging market currencies.
The dollar's strength was supported by a combination of risk-off sentiment and changing interest rate expectations, after the oil surge sparked concerns about global inflation. The market assessed a diminishing chance of a Federal Reserve interest rate cut, while the dollar also benefited from the US's position as the world's largest oil producer.
Other safe-haven assets were not uniform: government bonds, the yen, the Swiss franc, and gold were under pressure, while the dollar strengthened. The yen weakened again by 0.4% and was trading near levels that could potentially trigger intervention speculation, with market attention focused on the area near 160.
In terms of market positioning, data suggests there is still room for dollar strengthening. Hedge funds were recorded as the least bearish on the dollar since January, with bear positions of around US$12.3 billion for the week ending March 3, down from US$18.9 billion the previous week. In the interest rate market, investors postponed their expectations for a full quarter-point Fed rate cut until September, compared to July before the war broke out, and some bond options traders are even betting the Fed will not cut rates this year. (alg)
Source: Newsmaker.id
