Dollar nears 2026 highs as volatile oil fans inflation spike fears

LONDON, March 12 (Reuters) – The dollar gained for a third consecutive day on Thursday, staying close to its strongest levels this year as surging energy prices stoked inflation worries, which could potentially force central banks to reassess the need for interest-rate hikes.

The rapid increase in energy prices poses a threat to global growth, with economists warning that a prolonged conflict in the Middle East would further amplify the economic impact.

Unsurprisingly, the world’s biggest energy importers have seen their currencies post the largest losses against the dollar since the start of the U.S.-Israeli war on Iran. The Indian rupee and Japanese yen have lost more than 1.5% each, while the euro and the Korean won have lost 2% and 3%, respectively.

Meanwhile, the dollar has risen by more than 1.5% against a basket of major currencies and is close to its highest level since November, thanks in part to its safe-haven appeal, but also because the United States is a net energy exporter.

“The main thing that matters today is gas and oil, and the euro zone is quite exposed to these things. So you see the euro selling off across the board,” Barclays strategist Lefteris Farmakis said.

The euro was down 0.1% at $1.1558, not far off its lowest since November.

Farmakis said the general rule of thumb is the euro tends to lose around 0.5% for every 10% increase in the oil price and loses 2.5% whenever natural gas prices double.

Brent crude futures rose more than 10% at one point to highs of $101.59 per barrel, even after the International Energy Agency on Wednesday agreed to release a record 400 million barrels of oil from strategic stockpiles to combat the spike in crude prices.

European natural gas prices have risen around 70% since the start of the conflict, having briefly doubled in the first few days.

The pound fell 0.2% to $1.338, a little above its lowest point of the year so far. The yen briefly depreciated past the 159-per-dollar mark and was last at 158.66, near its weakest since July 2024.

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U.S. President Donald Trump said on Wednesday that Washington was in “very good shape” in its war on Iran, and that the U.S. was “going to look very strongly at the Straits.”

However, three sources familiar with the matter said U.S. intelligence indicated that Iran’s leadership was still largely intact and was not at risk of collapse anytime soon, after nearly two weeks of relentless U.S. and Israeli bombardment.

“President Trump keeps on saying, even overnight, that the war will end soon – it’s unclear to us that it’s really up to him,” said Rodrigo Catril, a currency strategist at National Australia Bank in Sydney.

“We should expect ongoing volatility in energy prices,” he said in a podcast.

Risk appetite took a further hit after Trump’s administration on Wednesday launched a new trade investigation into excess industrial capacity in 16 major trading partners, in a move aimed at rebuilding tariff pressure after the U.S. Supreme Court struck down the centerpiece of Trump’s tariff program last month.

More tremors rippled out from the world of private credit, this time from Swiss private equity company Partners Group, which the Financial Times cited on Thursday as saying default rates in the sector could double over the next few years.

The potential for another energy-price shock prompted traders to reassess their views on interest rates. The swaps market on Thursday 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 September before cutting rates, from a previous expectation for July, according to data compiled by LSEG.

(Reporting by Gregor Stuart Hunter; Editing by Kevin Buckland and Pooja Desai)