TOKYO, March 23 : The dollar was poised for a rebound on Monday as retaliatory threats escalated in the Middle East crisis, damping risk sentiment and boosting demand for haven assets.
The greenback closed its first weekly decline since the start of the war in Iran, as surging oil prices prompted central banks to adopt a hawkish stance. The Australian dollar slid in early trade as equity markets opened lower.
Hopes for an off-ramp to hostilities in the Gulf region dimmed over the weekend, with U.S. President Donald Trump threatening to strike Iran's electricity grid and Tehran vowing to retaliate against energy and water systems of its neighbors.
Rodrigo Catril, a currency strategist at National Australia Bank, said the market is favoring economies benefiting from positive energy supply shocks over those suffering from negative ones. This has led to struggles for the euro and yen, which could face further pressure if the conflict persists.
The dollar index rose 0.03% to 99.53. The euro fell 0.06% to $1.1563. The yen climbed 0.06% to 159.11 per dollar, while sterling weakened 0.06% to $1.3331.
Trump issued his latest threat to Iran on Saturday, less than a day after suggesting the U.S. might be considering winding down the conflict. Iran pledged retaliatory strikes on infrastructure in nearby countries, and the Strait of Hormuz shipping lane for oil remained closed.
The prospect of tit-for-tat strikes on civilian infrastructure threatens millions who rely on desalination plants for water. Air raid sirens sounded across Israel from the early hours of Sunday, warning of incoming missiles from Iran.
Before the U.S.-Israeli war on Iran began in late February, investors had priced in two Fed rate cuts this year. But they now largely believe one cut is a distant prospect, with other major central banks turning more hawkish.
The Fed left rates on hold as expected last week, but Chair Jerome Powell said it was too soon to know the scope and duration of the economic impact from the war.
The European Central Bank kept rates on hold on Thursday, but warned of inflation driven by energy prices. The Bank of England also kept rates on hold, while the Bank of Japan left the door open to a hike as soon as April.
Equity futures pointed to a plunge in Japan's Nikkei, while 10-year U.S. Treasury yields rose to a near eight-month high of 4.4055%.
The Australian dollar weakened 0.17% versus the greenback to $0.7011. New Zealand's kiwi edged 0.03% lower to $0.5832.
In cryptocurrencies, bitcoin fell 0.41% to $67,900.41, and ether declined 0.26% to $2,053.17.