Dollar edges higher on new spike in oil

The U.S. dollar index had added 0.4% to 99.64

The U.S. dollar edged higher on Thursday, as the dollar remains a popular safe-haven asset of choice amid a renewed spike in oil prices.

By 17:47 GMT, the U.S. dollar index had added 0.4% to 99.64. Meanwhile, EUR/USD weakened 0.4% to 1.1522, while GBP/USD edged down 0.4% to 1.3354.

Overall, the major takeaway is that there’s no sign the war between the U.S./Israel and Iran will reach a conclusion anytime soon. This could be the darkness before the dawn, but for now there’s a general move to derisk now and ask questions later, David Morrison, senior market analyst at Trade Nation, said.

The dollar is acting as the big ‘flight to safety’ trade. But it would take a significant break above 100.00 on cash to suggest that a significant bottom is in for the greenback, Morrison added.

Oil prices climbed on Thursday, taking out the critical $100 per barrel level, reflecting ongoing concerns that fighting in the Middle East could lead to a prolonged stoppage to vessel traffic through the Strait of Hormuz, a vital waterway south of Iran through which a fifth of the world’s oil flows.

Before the joint U.S.-Israeli aggression on Iran began in late February, Brent crude futures — the global benchmark — were exchanging hands around $70 a barrel.

The latest increase in crude has come despite the International Energy Agency agreeing to release massive amounts of oil reserves to help soothe anxious traders.

However, the move hasn’t calmed the oil market, analysts at ING said in a note.

Given the crucial role oil and gas play in the world economy, a protracted uptick could reignite inflationary pressures around the world, analysts have suggested. This could lead central banks to reconsider interest rate cuts. Higher borrowing costs may attract more foreign investment, bolstering the appeal of the dollar.

Underpinned by these drivers, the Dollar Index has advanced since the outbreak of the Iran war. Prior to the latest strikes, the index was floating just above the 97.0 level.