U.S. dollar strengthens amid fresh oil price jump above $100 a barrel

The U.S. dollar steadied on Thursday, but remains firmer compared to the start of the war in Iran, as investors fret over a renewed spike in oil prices.

By 06:03 ET (10:03 GMT), the U.S. dollar index, which tracks the greenback against a basket of rival currencies, had risen by 0.1% to 99.29. Meanwhile, the euro weakened slightly by 0.1% to $1.1558, while sterling edged down by 0.2% to $1.3388.

Hovering around sentiment was a brief spike in oil prices back above the critical $100 per barrel, reflecting ongoing concerns that fighting in the Middle East could lead to a prolonged stoppage to vessel traffic through the Strait of Hormuz, a vital waterway south of Iran through which a fifth of the world’s oil flows.

Merchant ships in and around the strait have been targeted by strikes, exacerbating these fears. On Wednesday, the United Kingdom Maritime Trade Operations, a maritime agency monitoring shipping activity, said a third vessel had be hit by an unknown projectile, after two other ships were hit and left on fire off of Iraq’s coast. Iraq and Oman have since moved to close oil terminals.

Before the joint U.S.-Israeli assault on Iran began in late February, Brent crude futures -- the global benchmark -- was exchanging hands around $70 a barrel.

The latest increase in crude has come despite the U.S. and members of the International Energy Agency agreeing to release massive amounts of oil reserves to help soothe anxious traders.

However, the move "hasn’t calmed the oil market," analysts at ING said in a note.

Given the crucial role oil and gas play in the plumbing of the world economy, a protracted uptick could reignite inflationary pressures around the world, analysts have suggested. This could lead central banks, such as the Federal Reserve, to reconsider interest rate cuts. Higher borrowing costs may attract more foreign investment, bolstering the appeal of the dollar.

Underpinned by these factors, the dollar index has advanced since the outbreak of the Iran war. Prior to the fresh strikes, the index was floating just above the 97.0 level.

Asian currencies, meanwhile, weakened across the board, given that a bulk of the region is highly dependent on oil and gas imports through the Strait of Hormuz. 

Muted CPI data, PCE print in focus 

Beyond the Iran conflict, investors were also keeping tabs on U.S. inflation data this week.

Consumer price index figures on Wednesday showed inflation remained largely steady in February from the prior month. But the print did not reflect the inflation bump from rising oil prices due to the U.S.-Israeli campaign in Iran. 

The personal consumption expenditures price index for January, due later this week, is expected to provide more cues on U.S. inflation. Crucially, the number is the Fed’s preferred inflation gauge, and is likely to factor into expectations for long-term rates.