The dollar is headed for its best two-day gain in almost a year. Why war is good for him
Escalation of the conflict in Iran and a jump in energy prices caused the strong performance of the U.S. currency
The dollar is targeting its biggest two-day gain in nearly a year. Photo:Ruslan Lytvyn/Shutterstock
The dollar aimed for the strongest two-day rise in almost a year. The escalation of war in Iran has increased inflationary concerns and spurred demand for defensive assets, Bloomberg writes .
Details
The Bloomberg Dollar Spot Index, which shows the strength of the U.S. dollar against a basket of world currencies, rose more than 1 percent on March 3. It is close to posting its best two-day period since last April, Bloomberg says. Back then, the market was recovering after the initial panic over U.S. President Donald Trump's trade duties abated, the agency said.
The yield on 10-year U.S. Treasuries rose seven basis points on Tuesday, to a three-week high, as traders lowered expectations for an interest rate cut, Bloomberg added.
Key growth factors
The energy crisis caused by the widening conflict in the Middle East is pushing energy prices up. Brent crude has surpassed $85 per barrel for the first time since July 2024, while natural gas prices in Europe have jumped more than 40% to their highest level since 2023.
Against this background, the market is revising expectations on the rates of the US Federal Reserve System (FRS) and reducing forecasts for easing the regulator's policy. Money markets are now laying the rate cut by only 37 basis points by the end of the year, although on Friday this figure was 60 points, Bloomberg specifies.
Market Reaction
The situation on the options market mirrors the dynamics of the spot rate: traders are massively betting on further growth of the U.S. currency, Bloomberg points out. Now market participants have to pay extra for hedging (insurance) against a broad strengthening of the dollar - a sharp contrast to the situation just a few days ago, when the market was in a state of historical uncertainty.
Special attention should be paid to the indicator of risk reversals - a key indicator of market positioning, which reflects the difference in value between bets on the growth and decline of the currency. The current values of this indicator show that short-term sentiment in favor of the dollar has not been so "bullish" (growth-oriented) since June, summarizes Bloomberg.
This article was AI-translated and verified by a human editor
