Dollar Hits One-Month High, Brent Crude Surpasses $100 Amid Rising Tensions

The U.S. dollar gained broadly on Thursday (23rd), reaching a 40-year high against the Japanese yen and rising against the euro. Oil prices surged, and the European Central Bank's (ECB) decision to hold interest rates steady further boosted demand for the dollar.

At the close of trading in New York, the dollar index (DXY), which tracks the greenback against six major currencies, rose 0.3% to 101.46, its highest level since June 25.

Brent crude extended gains for a fifth consecutive session, breaking above $100 per barrel for the first time since late May. This followed attacks claimed by Yemen's Iran-backed Houthi rebels on two Saudi Arabian oil tankers, sparking renewed concerns over global oil supply. Disruptions around the Strait of Hormuz further intensified inflation fears.

The dollar's recent strength has been fueled by renewed price pressures, prompting traders to reassess the Federal Reserve's potential for resuming rate hikes. Additionally, markets perceive the U.S. economy as better positioned than Europe or Japan to withstand rising energy costs, further supporting the dollar.

ECB: Full Impact of Energy Shock on Inflation Not Yet Clear

The European Central Bank held its three key interest rates unchanged, with the deposit facility rate, main refinancing rate, and marginal lending rate remaining at 2.25%, 2.40%, and 2.65%, respectively.

The decision was in line with market expectations. After the ECB's June rate hike, oil prices had fallen significantly, easing inflationary pressures. However, rising tensions between the U.S. and Iran this month have pushed oil prices higher again, altering the inflation outlook.

In its statement, the ECB said, "While the energy price outlook remains highly volatile, it is currently broadly in line with the Eurosystem staff's baseline scenario from June and remains well above pre-Middle East conflict levels. Uncertainty remains high, and the full impact of the energy shock on inflation has not yet fully materialized."

The ECB also reiterated that future monetary policy decisions would be "data-dependent and determined meeting by meeting," without committing to any future rate actions.

ECB President Christine Lagarde stated at a press conference that the decision was unanimous.

However, she added, "I should note that some members of the Governing Council did consider whether we should raise rates—meaning, increase all three key rates at this meeting."

"We carefully and comprehensively reviewed the data and current developments, and ultimately, all agreed that the current policy stance is appropriate to continue waiting and closely monitoring the situation and the upcoming data over the coming weeks."

Following the ECB's rate decision and Lagarde's comments, the euro weakened against the dollar, falling approximately 0.3% to 1.1374.

Middle East Tensions Escalate

Turning to the Middle East, Brent crude futures surged above $100 per barrel on Thursday for the first time since May.

The renewed oil price spike has reignited inflation concerns, most notably reflected in a sharp rise in U.S. Treasury yields as traders continue to sell off U.S. government bonds.

The 10-year U.S. Treasury yield rose 4.7 basis points to 4.704%.

The Houthi rebels, backed by Iran, claimed attacks on two Saudi oil tankers in the Red Sea, raising fears that the Middle East conflict could escalate further. This marked the first such attack since the Houthis announced a blockade on Saudi vessels earlier in the week.

These attacks could further disrupt global oil supplies in the region. Kpler, a vessel-tracking firm, estimates that around 1.9 million barrels per day of refining capacity along Saudi Arabia’s west coast may be at risk of missile strikes.

Kpler also reported that confirmed vessel traffic through the Strait of Hormuz has dropped by 75%, leaving more crude oil stranded in the Persian Gulf.

As the U.S. and Iran continue retaliatory strikes, ships are becoming increasingly cautious when navigating this critical waterway.

On Wednesday, U.S. Central Command completed its 12th consecutive night of airstrikes against Iran. The U.S. naval blockade has forced nine commercial vessels to reroute and disabled one ship to prevent access to and from Iranian ports.

In response, Tehran launched retaliatory attacks on U.S. military bases in neighboring Kuwait, Jordan, and Bahrain.

President Trump criticized the Houthis on Thursday morning, stating that the group had "behaved very responsibly" over the past year but has now "resumed action" by attacking two Saudi vessels. He vowed "major military retaliation" against both the Houthis and Iran.

As of approximately 5:50 a.m. Taiwan time on Friday (24th), exchange rates were:

DXY: 101.4167 (-0.0298%)

EUR/USD: 1.1379 (+0.0176%)

GBP/USD: 1.3313 (-0.0075%)

AUD/USD: 0.6966 (-0.0287%)

USD/CAD: 1.4081 (-0.0213%)

USD/JPY: 163.8000 (-0.0366%)