Dollar Climbs With No End In Sight For Iran War; Yen at 20-Month Low

The dollar rose to a more than three-month high on Friday and was set for its second weekly gain since the beginning of the war in Iran as turmoil in markets left it the last safe-haven standing.

The euro fell to its lowest level since November, and Japan warned that it was ready to take action to protect against declines in the yen, which touched its weakest point in 20 months. With oil prices surging, the U.S. permitted the sale of some Russian petroleum products that had been sanctioned due to Moscow's hostilities in Ukraine. Iran stepped up attacks on oil and transport facilities across the Middle East as its new Supreme Leader Mojtaba Khamenei vowed to keep the Strait of Hormuz shipping lane closed.

"For the moment now, the market has got a new focus. It's not diversification, it's inflation, and it's lower growth," Gavin Friend, senior markets strategist at National Australia Bank in London, said on a podcast. "It's the mix, the toxic mix, of higher inflation and lower growth that will come the longer this whole crisis stays with us."

The dollar index, which measures the greenback against a basket of currencies, reached the highest level since November 26, thanks in part to its safe-haven appeal, but also because the United States is a net energy exporter.

The index rose 0.16% to 99.83, poised for a 1% gain this week. The euro slid 0.08% to $1.1501, a level not seen since November 21.

The yen slid to 159.69 per dollar, the weakest since July 2024. Sterling fell 0.08% to $1.333.

The United States and Israel launched air attacks on Iran almost two weeks ago that killed the nation's supreme leader, prompting retaliatory strikes from Tehran that have expanded the conflict and halted almost all shipping from the Gulf. U.S. President Donald Trump said that he thinks new Supreme Leader Khamenei, the son of the slain head of state, is alive but "damaged," after Iranian state television described him as war-wounded. The Trump administration has burned through "years" of critical munitions since the start of the war, the Financial Times reported. And in Western Iraq, the U.S. is carrying out rescue efforts after a military refueling aircraft crashed.

The IEA on Wednesday agreed to release a record 400 million barrels of oil from strategic stockpiles. And the U.S. on Thursday issued a 30-day waiver for countries to buy Russian petroleum products currently stranded at sea.

Japan is ready to take whatever steps are necessary against yen moves that impact people's lives, Finance Minister Satsuki Katayama said on Friday, adding that she was in close contact with U.S. authorities on foreign exchange.

When the yen weakened toward the critical 160 per dollar level in January, the U.S. conducted so-called rate checks that often presage intervention, helping drive a rally in Japan's currency.

As a major energy importer, Japan faces a double whammy from the Middle East crisis due to rising energy costs and diminished safe-haven appeal for the yen, according to IG Markets analyst Tony Sycamore.

Also Read: Indian Rupee Hits Record Low As Investors Fret Energy Supply Risks

"What was once a 'line in the sand' at 160 has evolved into more of a moving goalpost," he wrote in a note. "Against such a hostile macro backdrop, it makes little sense for authorities to waste precious intervention ammunition." Investors are also focused on central bank meetings next week in the U.S., Europe, and Japan to gauge how policymakers will react to the prospect of an energy-price shock.

The swaps market showed that traders expect the European Central Bank to raise rates possibly as soon as June, while the U.S. Federal Reserve could leave it until December before cutting rates, from a previous expectation for July.

The Australian dollar weakened 0.18% versus the greenback to $0.7061. New Zealand's kiwi sank 0.44% to $0.5828.

In cryptocurrencies, bitcoin gained 1.90% to $71,527.50, and ether rose 2.23% to $2,109.03. (Reporting by Rocky Swift in Tokyo; Editing by Lincoln Feast)