Dollar marks huge monthly rise on haven demand

The US dollar is on track on Tuesday to post its largest monthly gain since July, emerging as the strongest safe-haven asset amid the war in the Middle East, which has pushed oil prices higher while most other assets declined and increased the risk of a global recession.

Currencies of advanced economies were largely stable during Tuesday’s trading, with the Japanese yen holding at ¥159.62 per dollar, while the euro showed little change at $1.1472, and the British pound rose 0.14% to $1.3202. However, all three currencies are heading for losses of more than 2% in March. For the euro and the pound, this marks the largest monthly decline since July, while the yen is set for its biggest drop since October.

The dollar has been supported by the United States’ position as a major energy producer, in addition to investors’ shift over the past month toward holding cash as a safer option amid the conflict.

Recent developments in the war had limited impact on currency movements on Tuesday, although they reinforced broader monthly trends in the markets. A Wall Street Journal report said that US President Donald Trump is willing to halt attacks on Iran without forcing it to reopen the Strait of Hormuz. Lee Hardman, a senior currency analyst at MUFG, said that the lack of a clear plan to reopen the strait continues to pose an upside risk to global energy prices, adding that the likelihood of a larger hit to economic growth outside the United States continues to support the strength of the US dollar.

Asian currencies recorded some of the largest losses during this period. In Tuesday’s trading, the dollar rose 1% against the South Korean won to 1,534 won, a level previously seen only after the 2009 global financial crisis and during the Asian financial crisis of 1997–1998.

The dollar index, which measures the US currency against a basket of six major currencies, rose to its highest level since May at 100.64 points before stabilizing at 100.47 points, posting gains of about 2.8% since the start of March.

In foreign exchange markets, renewed threats of intervention by Japanese authorities to support the yen were among the key factors being monitored by investors. These warnings helped limit further selling pressure on the Japanese currency, which is currently trading near its weakest levels since July 2024. Japan’s Finance Minister Satsuki Katayama said on Tuesday that Tokyo is ready to act “on all fronts” to counter excessive market movements, noting that authorities are observing increased speculative activity in both currency and oil futures markets.

Since the outbreak of the war, the dollar has outperformed several assets traditionally considered safe havens. Rising inflation expectations have weighed on bond markets, while liquidation of positions has pressured gold, and the energy price shock has negatively affected Japan’s trade balance. At the same time, Swiss authorities have indicated that they may intervene to limit any sharp appreciation of the Swiss franc.

The dollar rose about 4% in March against the Swiss franc to around 0.80 francs, and also broke key resistance levels against the Australian and New Zealand dollars in recent sessions.

The Australian dollar declined for eight consecutive sessions, hitting a two-month low of $0.6834, down 3.7% in March, while breaking a key support level at $0.6897. The New Zealand dollar also fell for six straight sessions, approaching a break below the $0.57 level.

Analysts believe that the main risk facing the dollar could come from upcoming US labor market data, scheduled for release during the Good Friday holiday, which typically sees lower market liquidity. Strategists at Union Bancaire Privée also warned of a potential shift in the traditional relationship between currency and equity markets, where the dollar usually rises when stocks fall.

They noted that the relationship between currency and equity markets has remained relatively stable since the outbreak of the conflict, but could change if markets begin pricing in a longer-lasting conflict amid still-uncertain outcomes.

Meanwhile, eurozone inflation data for March is due later in the session, while German data released on Monday pointed to the possibility of inflation returning above the European Central Bank’s 2% target.