The US dollar rose against major currencies on Thursday, recovering from losses over the previous two days, after US President Donald Trump’s speech on Iran dashed hopes for a quick end to the conflict in the Middle East, negatively impacting investor sentiment.
During a speech eagerly awaited by investors, Trump pledged to carry out more powerful military strikes against Iran within two to three weeks, without providing any clear timetable for ending the war that has confused markets and triggered widespread volatility.
These statements prompted investors to quickly abandon high-risk assets and move towards the US dollar, which led to a decline in the yen, the euro, the pound sterling and most emerging market currencies.
The dollar returns as a safe haven
The dollar index, which measures the performance of the US currency against a basket of currencies, rose by about 0.5% to regain the 100-point level, as demand for safe havens returned.
This rise has wiped out most of the dollar's losses over the past two days, which were driven by previous optimism about a possible easing of the war in Iran, putting the US currency on track for new weekly gains.
In contrast, stocks fell and oil prices rose, with Brent crude futures jumping more than 6% to near $110 a barrel, after Trump’s comments raised fresh concerns about continued supply disruptions and the possibility of entering a stagflationary recession.
Global currencies decline and anxiety rises
Carol Kong, a currency analyst at Commonwealth Bank of Australia, said that Trump's statements did not reassure the markets, but rather led them to believe that the war might be heading towards further escalation before any possible de-escalation.
She added that the dollar has room to rise further against major currencies, given the markets' awareness that the global economy may experience a significant slowdown in the coming period.
The euro fell to $1.1537 and the pound sterling to $1.3233, down about 0.5% each, giving up some of their recent gains.
Risk-sensitive currencies under pressure
The Australian and New Zealand dollars, both currencies linked to risk appetite, fell by about 0.7% each, settling near their lowest levels in two months at $0.6878 and $0.5709 respectively.
The Japanese yen also fell by 0.4% to 159.375 against the dollar, but remained below the 160 level, which is a psychologically sensitive level that could prompt Japanese authorities to intervene in the exchange market.
Meanwhile, Trump’s comments pushed US Treasury yields higher during Asian trading, amid growing concerns that rising oil prices could fuel inflation and close the door to any near-term monetary easing.
All eyes are on job data
These developments come ahead of the release of the U.S. non-farm payrolls report on Friday, with markets expecting the addition of around 60,000 jobs in March, according to the median estimate of economists.
Kyle Rodda, senior financial markets analyst at Capital.com, explained that any weak reading could increase market turmoil and fuel fears of stagflation, especially given the challenges the Federal Reserve faces in balancing inflation control with growth support.
He added that markets may experience sharp fluctuations in the coming period, especially with the approach of the Easter holiday, as investors become increasingly sensitive to any new developments in the geopolitical and economic landscape.
