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As war spirals in the Middle East, one driver is increasingly overshadowing others when it comes to the US dollar: the price of oil.<\/p>\n
In just a week, a historic surge in energy prices brought on by the US-Israeli attack on Iran has upended inflation and growth outlooks across the world. That includes the US, where Treasury prices have been sinking. The dollar, nonetheless, has marched higher. Its rise has been catalysed by the US\u2019s position as the world\u2019s top oil producer and by the dollar\u2019s role as the currency for global crude trade, said traders and strategists.<\/p>\n
Bloomberg\u2019s dollar gauge is up nearly 1% since the launch of US and Israeli strikes on Iran on Feb 28. The greenback has rallied against all peers except the Canadian and Australian dollars, two currencies also highly linked to global energy prices. Brent crude oil futures have gained about 25%, meanwhile. As a result, a measure of the near-term correlation between oil and the dollar turned sharply positive this March.<\/p>\n
\u201cThe market has quickly realised that only a couple of trades work,\u201d said Nathan Thooft, a senior portfolio manager at Manulife Investment Management. \u201cThose are oil and the dollar.\u201d<\/p>\n<\/p>\n
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A Bloomberg analysis of activity in the options market tells a similar story. Some 60% of the activity observed this week in euro-dollar derivatives via the Depository Trust & Clearing Corp. was tied to bets that the dollar would rise against the euro. The average in January and February, conversely, was around 60% in favour of the euro. The shift likely reflects a market increasingly focused on the single currency\u2019s exposure to energy imports.<\/p>\n
\u201cHigher oil prices mechanically improve the US terms of trade and increase global demand for dollars to transact energy,\u201d said Neil Sutherland, a portfolio manager at Schroder Investment Management. \u201cAt the same time, the US is structurally more insulated from an energy shock than most of the G-10, so relative growth expectations are shifting in its favour.\u201d<\/p>\n
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The dollar\u2019s recent surge stands in contrast to a trend that\u2019s been in place since President Donald Trump\u2019s inauguration: dollar depreciation prompted in part by broader uncertainty surrounding US trade and economic policies. Despite the recent gains, Bloomberg\u2019s dollar measure is still down some 6% over the last 12 months.<\/p>\n
Before the war started, the greenback was often negatively correlated with oil, trading down as oil prices rose, said Nicholas Wall, head of global FX strategy at JPMorgan Asset Management. Since 28 February, however, oil prices and the greenback have been rising in tandem, prompting some to refer to the currency as a petrodollar.<\/p>\n
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The trend continued on Tuesday, as the Bloomberg dollar index slipped about 0.1% while the price of global benchmark Brent crude fell about 8%.<\/p>\n
Still, the longer the conflict in the Middle East continues, the more sensitive US consumers \u2014 long attuned to prices at the pump \u2014 will be to rising oil prices. That could ultimately dent future growth in the US just as it will in other major economies around the world, which could be a drag on the currency\u2019s strength in the longer term.<\/p>\n
\u201cIt\u2019s a relative strength story, but I wouldn\u2019t go so far as to say that the US dollar is a \u2018petrodollar,\u2019\u201d said Kathy Jones, the head of fixed-income strategy at Charles Schwab. \u201cThe US economy will likely see a decline in GDP growth as a result of higher energy prices that affect consumer spending, so it isn\u2019t a net positive overall.\u201d<\/p>\n
What Bloomberg strategists say\u2026<\/p>\n
\u201cOil is priced in dollars, global trade is financed in dollars and a vast stock of offshore liabilities is denominated in the greenback. When crude spikes, it is effectively a direct demand shock for the currency at the core of the petrodollar complex.\u201d<\/p>\n
-Brendan Fagan, MLIV Strategist<\/p>\n
Macro investors are increasingly torn as they consider both the price shocks of surging oil as well as the looming hit to global growth, said Christopher Gunster, head of fixed income at Fidelis Capital Partners. The market is selling Treasuries and buying dollars, he noted, which is a counterintuitive effect of the war.<\/p>\n
\u201cYou\u2019re seeing the fight-to-quality and the inflationary impacts conflict with each other,\u201d Gunster said.<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#Dollar #enjoys #petrocurrency #status #oil #drives #markets<\/p>\n","protected":false},"excerpt":{"rendered":"
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