President Donald Trump said the United States would target Iran “very hard” next week, shortly after issuing a 30-day partial waiver of oil purchases from Russia sanctions, hoping to lower oil prices due to the US-Israel war on Iran. A sharp and prolonged rise in oil prices would hit the economies of Japan and the Eurozone, which rely heavily on oil imports, while the United States, which has been a major crude exporter for nearly a decade, would be relatively unscathed.
“Global investors are opening up cross-border exposures, pushing money into safe havens, and punishing currencies issued by net energy importers,” said Carl Schmutta, market strategist at Carpe in Toronto.
The euro was 0.6% lower against the dollar at $1.14395. The dollar index, which measures the greenback’s strength against a basket of currencies, was up 0.7% at 100.35. The index is up 1.5% for the week.
However, Shumota cautioned that the FX markets face two-fold risks.
“As the war continues, both Tehran and Washington have strong motivation to return to the negotiating table and there are good reasons to doubt that they can strike a face-to-face deal as soon as this weekend.” Shamuta said.
Inflation Watch
Data on Friday showed that US consumer spending rose slightly more than expected in January, which, along with persistent inflation and war in the Middle East, reinforced economists’ views that the Federal Reserve will not resume interest rate cuts for some time.
“The latest personal consumption inflation data tells us that the inflation picture was not good even before the Middle East crisis,” Sonu Varghese, global macro strategist at the Carson Group, said in a note.
“The already big headache for the Federal Reserve will turn into an even bigger one, and it’s likely that the Fed won’t cut rates in 2026 and may start talking about raising rates later this year,” Varghese said.
EURO PAIN Investors await the European Central Bank’s policy meeting next Thursday, while traders are betting that rising oil prices will force the central bank to raise rates this year.
Still, economists worry about monetary tightening in economies where reliance on oil imports means rising energy costs are likely to weigh on growth.
“It has become very clear that shipping through the Strait of Hormuz could be affected for some time,” Jane Foley, head of FX strategy at Rabobank, said in a note.
“We have therefore lowered our EUR/USD forecasts on the 1- and 3-month outlook to 1.14 and 1.15, respectively, from 1.16,” she said.
YEN in the intervention area
Against the Japanese yen, the dollar hit its strongest level since July 2024 and was last up 0.2% at 159.67 yen.
Japan is ready to take necessary measures against yen movements that affect people’s lives, Finance Minister Satsuki Katayama said on Friday, adding that he is in close contact with US officials on foreign exchange issues.
“Policymakers are likely to have little idea of the impact a weaker exchange rate will have on already high import bills,” Schmutta said, noting that pressure to intervene to support the weakened yen may increase in the coming days and weeks.
Leading cryptocurrency bitcoin was up 1.2% at $71,021, after rising to a nine-day high during the session.
