The US dollar is heading toward its second consecutive weekly gain on Friday as investors turn to safe-haven assets amid the escalating war in the Middle East, while energy-sensitive currencies such as the euro and the yen fell to their lowest levels in several months.

The sharp and prolonged rise in oil prices is expected to significantly affect the economies of Japan and the eurozone, both of which rely heavily on crude oil imports, while the United States remains relatively less affected as it has been a net exporter of oil for nearly a decade.

At the same time, economists are expressing caution about tightening monetary policy in those economies, as their heavy dependence on fuel imports means that rising energy costs could weigh on economic growth.

The euro fell to its weakest level since August, while Japan warned that it is ready to take action to protect its currency after the yen dropped to a 20-month low.

As oil prices rise, the United States has allowed the sale of some Russian oil products that had been under sanctions due to the war in Ukraine. Meanwhile, Iran has intensified attacks on oil and transportation facilities across the Middle East, while the new Supreme Leader Ayatollah Mojtaba Khamenei pledged to keep the shipping route through the Strait of Hormuz closed.

Volkmar Baur, currency strategist at Commerzbank, said that recent statements by the US administration about the possibility of a quick end to the war now appear closer to attempts to push oil prices lower again, adding that markets are responding to such signals less and less.

Markets have also increased bets on tighter monetary policy on both sides of the Atlantic, with higher oil prices expected to intensify inflationary pressures.

Brent crude futures rose on Friday as the United States sought to calm supply concerns by issuing a 30-day license allowing countries to purchase Russian oil and oil products stranded at sea. Earlier this week, the International Energy Agency approved the release of a record 400 million barrels from strategic reserves.

However, some analysts believe that emergency measures to address supply disruptions could send a subtle negative signal to markets, suggesting that global leaders see little room for a quick de-escalation.

The dollar index, which measures the performance of the US currency against a basket of major currencies, rose to its highest level since November 28, supported by its safe-haven appeal and by the United States being a net energy exporter. The index rose 0.51% to 100.22 and is heading for a weekly gain of about 1.4%.

Euro at a seven-and-a-half-month low

The euro fell to $1.1438, its lowest level since August, down 0.62%. Investors are awaiting the European Central Bank’s monetary policy meeting next week, while traders are betting that higher oil prices could push the bank to raise interest rates later this year.

Economists believe that a prolonged closure of the Strait of Hormuz would be necessary to justify tightening monetary policy by the European Central Bank to combat inflation.

However, analysts at Citi said that two precautionary interest rate hikes cannot be ruled out, although their base scenario remains that policy will stay unchanged due to the prevailing uncertainty.

The dollar also rose to its highest level since January against the Swiss franc at 0.7894.

Yen approaches intervention zone

The yen fell to 159.69 against the dollar, its weakest level since July 2024. Japanese Finance Minister Satsuki Katayama said the country is ready to take the necessary steps to address currency movements that affect people’s lives, adding that Japan is in close contact with US authorities regarding foreign exchange market issues.

The yen’s weakness toward the 160 level against the dollar in January prompted the United States to conduct what are known as interest rate checks, which often precede market intervention, helping support the Japanese currency at the time. However, some analysts believe that the recent hesitation by officials to verbally support the yen could push it down to 165 against the dollar.

Chris Turner, head of currency strategy at ING, said that potential joint intervention with the US Federal Reserve could be more effective and sustainable, but noted that the main issue is that the dollar/yen pair will not decline sustainably unless energy prices fall.

The Australian dollar also fell 0.70% to $0.7027.

Gold prices rose in European trading on Friday for the first time in the past three days, supported by relatively active safe-haven buying. Despite this rebound, the metal is still on track for a second consecutive weekly loss due to the broad strength of the US dollar in the foreign exchange market.

Higher energy costs have fueled concerns about accelerating inflation across most parts of the world and further reduced the likelihood of near-term interest rate cuts by the Federal Reserve. To reassess those expectations, investors are awaiting a series of key US economic data releases later today.

Price Overview

Gold prices today: gold rose 1.0% to $5,128.64, up from the session opening level of $5,079.62, after hitting a low of $5,061.80.

At Thursday’s settlement, gold fell 1.85%, marking its second consecutive daily loss due to the strength of the US dollar.

Weekly performance

Over the course of this week’s trading, which officially ends with today’s settlement, gold prices are down about 1.0% so far and are heading toward a second consecutive weekly loss.

US dollar

The dollar index rose 0.55% on Friday, extending gains for the fourth consecutive session and reaching a four-month high of 100.30 points, reflecting the continued broad strength of the US currency against a basket of global currencies.

As is widely known, a stronger US dollar makes gold, which is priced in dollars, less attractive to buyers holding other currencies.

The rally comes as investors continue buying the dollar as a preferred safe-haven asset, with the Iran war approaching its third week and fears growing that the conflict could widen across the Middle East. This has pushed energy prices sharply higher and increased negative pressure on the global economy.

Global oil prices

Oil prices surged sharply as Iran escalated attacks on oil facilities and transportation infrastructure across the Middle East, raising fears of a prolonged conflict and potential disruptions to global oil flows.

Iran’s new Supreme Leader, Mojtaba Khamenei, pledged on Thursday to keep the Strait of Hormuz closed. The Iranian military command warned the previous day that the world should prepare for oil prices reaching $200 per barrel after three more ships were attacked in the blockaded Gulf.

US interest rates

Amid rising oil prices, US President Donald Trump again called on Federal Reserve Chair Jerome Powell to cut interest rates.

According to the CME FedWatch tool from CME Group, markets are pricing a 99% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25-basis-point rate cut stands at 1%.

Markets are also pricing a 95% probability that rates will remain unchanged at the April meeting, while the probability of a 25-basis-point rate cut stands at 5%.

To reassess these expectations, investors are closely monitoring a series of important US economic data releases today, including fourth-quarter economic growth figures, January personal consumption expenditures, and job openings data for the end of January.

Gold outlook

Tim Waterer, chief market analyst at KCM Trade, said that inflation concerns and questions about the Federal Reserve’s ability to cut interest rates if oil prices continue rising are somewhat reducing gold’s appeal.

Analysts at Standard Chartered noted that gold coming under downward pressure for several weeks is not unusual when liquidity demand increases. They added that they maintain a positive long-term outlook and expect gold to resume its upward trend after the near-term profit-taking phase.

SPDR fund

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined by 1.43 metric tons on Thursday, bringing the total to 1,075.85 metric tons.

The euro fell in European trading on Friday against a basket of global currencies, deepening its losses for the fourth consecutive day against the US dollar and hitting its lowest level in four months. The single European currency is on track for a second straight weekly loss due to the global energy price crisis and its negative impact on the European economy.

The US currency continues to shine in the foreign exchange market as investors keep buying the dollar as the preferred safe-haven asset amid escalating military confrontations between the United States and Israel on one side and Iran on the other.

Price Overview

Euro exchange rate today: the euro fell 0.1% against the dollar to $1.1500, the lowest level since last November, from the session opening level of $1.1511, after reaching a high of $1.1530.

The euro ended Wednesday’s session down 0.5% against the dollar, marking its third consecutive daily loss due to renewed concerns about energy prices.

Weekly performance

Over the course of this week’s trading, which officially ends with today’s settlement, the euro has declined about 1% against the US dollar so far, heading for a second consecutive weekly loss.

Global energy prices

Energy prices, including oil and natural gas, have surged sharply as Iran escalated attacks on oil facilities and transportation infrastructure across the Middle East, increasing fears of a prolonged conflict and potential disruptions to energy flows.

Iran’s new Supreme Leader, Mojtaba Khamenei, pledged on Thursday to keep the Strait of Hormuz closed. The Iranian military command warned the previous day that the world should prepare for oil prices reaching $200 per barrel after three more ships were attacked in the blockaded Gulf.

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refill season is approaching, and the European Union is preparing to start the season with record-low gas levels in storage, meaning it will need to purchase large volumes of energy immediately, with the risk of significantly higher prices.

US dollar

The dollar index rose more than 0.1% on Friday, extending gains for the fourth consecutive session and reaching a four-month high of 99.86 points, reflecting the continued strength of the US currency against a basket of global currencies.

The rally comes as investors continue buying the dollar as a preferred safe-haven asset, with the Iran war approaching its third week and fears growing that the conflict could widen across the Middle East. This has pushed energy prices sharply higher and increased negative pressure on the global economy.

European interest rates

Money markets currently price only a 5% probability that the European Central Bank will cut interest rates by 25 basis points at the March meeting.

Meanwhile, amid rising global energy prices, data from the London Stock Exchange Group (LSEG) suggests the European Central Bank could raise interest rates in June.

To reassess these expectations, investors are awaiting further economic data from the eurozone on inflation, unemployment, and wage levels.

The Japanese yen fell in Asian trading on Friday against a basket of major and minor currencies, deepening its losses for the fourth consecutive day against the US dollar and hitting its lowest level in 20 months. The currency is heading toward a fourth straight weekly loss as investors continue buying the US dollar as a preferred safe-haven asset amid escalating military confrontations in the Middle East.

Japanese authorities are closely monitoring movements in the domestic currency in the foreign exchange market, although the room for intervention appears more limited than in previous periods. This comes despite pressure pushing the yen toward the ¥160 per dollar level, which was previously viewed as a threshold that could trigger official intervention.

Price Overview

Japanese yen exchange rate today: the US dollar rose 0.25% against the yen to ¥159.68, the highest level since July 2024, up from the session opening level of ¥159.32, with a session low of ¥159.01.

The yen ended Thursday’s session down about 0.25% against the dollar, marking its third consecutive daily loss due to the escalation of the Iran war.

Weekly performance

Over the course of this week’s trading, which officially ends with today’s settlement, the Japanese yen has fallen about 1.25% against the US dollar so far, putting it on track for a fourth consecutive weekly loss.

US dollar

The dollar index rose more than 0.1% on Friday, extending its gains for the fourth straight session and reaching a four-month high of 99.86 points, reflecting the continued strength of the US currency against a basket of global currencies.

The rally comes as investors continue buying the dollar as a preferred safe-haven asset, with the Iran war approaching its third week and fears growing that the conflict could widen across the Middle East. This has pushed energy prices sharply higher and increased negative pressure on the global economy.

Global oil prices

Oil prices surged sharply as Iran intensified attacks on oil facilities and transportation infrastructure across the Middle East, increasing fears of a prolonged conflict and potential disruptions to global oil flows.

Iran’s new Supreme Leader, Mojtaba Khamenei, pledged on Thursday to keep the Strait of Hormuz closed. The Iranian military command had already warned the previous day that the world should prepare for oil prices reaching $200 per barrel after three more ships came under attack in the blockaded Gulf.

Analysts said the International Energy Agency’s proposal to release 400 million barrels from oil reserves — a record amount — would not be sufficient to ease fears of supply disruptions from the Middle East.

Japanese authorities

Finance Minister Satsuki Katayama avoided giving a direct answer on Friday when asked about the possibility of intervening in the currency market, saying the government is ready to act at any time “while considering the impact that currency movements may have on citizens’ livelihoods.”

Katayama told parliament earlier this week that Japan had “strongly urged” its Group of Seven counterparts to hold a meeting to discuss measures to address rising oil prices, referring to discussions that resulted in an agreement to consider releasing emergency strategic oil reserves.

Shota Ryu, a foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities, said that if Japan intervenes now, the impact may be limited because dollar buying as a safe haven is likely to continue unless the situation in the Middle East stabilizes.

Ryu added that intervention could even encourage speculators to sell the yen again once it rebounds.

Japan justifies intervention in the foreign exchange market based on an agreement among the advanced G7 economies allowing authorities to intervene to counter excessive volatility caused by speculative moves that deviate from economic fundamentals.

Japanese interest rates

Markets currently price a 5% probability that the Bank of Japan will raise interest rates by a quarter point at the March meeting, while the probability of a quarter-point hike in April stands at 35%.

In the latest Reuters survey, the Bank of Japan is expected to raise interest rates to 1% by September.

Analysts from Morgan Stanley and MUFG wrote in a joint research report that while the probability of a rate hike in March or April had already been considered low, the growing uncertainty surrounding developments in the Middle East makes it more likely that the Bank of Japan will adopt a more cautious stance, reducing the chances of near-term rate increases.

To reassess these expectations, investors are awaiting further economic data on inflation, unemployment, and wages in Japan.