Dollar Strengthens, Oil and Inflation Narrow Fed Cut Room
The US dollar strengthened on Friday (March 13) and is on track to end the week with solid gains for the second straight week, as the greenback remains a preferred safe haven amidst the ongoing Iran war. At 3:46 p.m. ET, the US dollar index, which measures the greenback against a basket of six major currencies, rose 0.7% to 100.36 and is on track for a 1.4% weekly gain.
The dollar's gains coincided with weakening in other major currencies. EUR/USD fell 0.8% to 1.1423, while GBP/USD weakened 0.9% to 1.3228. In Asia, USD/JPY rose 0.2% to 159.65, indicating the yen remains under pressure amid energy uncertainty and persistent dollar demand.
The dollar's main support comes from the US-Israel war against Iran, which has been ongoing for more than a week. President Donald Trump said Washington is “totally destroying” Iran’s military and economic capabilities, while Tehran has vowed to continue fighting. Iran’s new supreme leader, Mojtaba Khamenei, also stated that the Strait of Hormuz will remain closed, increasing the risk to global energy flows.
The prospect of a longer closure of Hormuz has triggered sharp volatility in the oil market. Brent crude this week briefly soared to US$120 per barrel before falling below US$90, and on Friday it held above US$100 again. Because much of the oil and gas passing through the Strait is used for products like fertilizers and plastics, the surge in energy prices has the potential to trigger broader inflationary pressures in many countries.
These inflationary risks could prompt central banks, including the Federal Reserve, to delay any imminent interest rate cuts. The market is now awaiting January’s core PCE data, with core PCE expected to rise 3.1% annually, slightly higher than December’s 3.0%. This data is important because it is one of the Fed’s key inflation indicators and will be read alongside developments in the oil market ahead of next week’s series of interest rate decisions from the Fed, ECB, and Bank of England.
Source: Newsmaker.id
