President Donald Trump said, shortly after issuing a partial 30-day amnesty for the purchase of approved Russian oil, hoping to ease fuel prices caused by the US-Israeli war over Iran. Iran is “going to be hit very hard in the coming weeks”. A sharp and prolonged rise in oil prices would severely damage the economies of Japan and the euro zone, which are heavily dependent on crude imports, while the United States, which has been a net crude exporter for nearly a decade, would be relatively insulated.
“Global investors are eliminating cross-border exposures, pushing money into safe havens, and punishing currencies issued by net energy importers,” said Carl Schemotta, chief market strategist at Corpe in Toronto.
The euro was down 0.6% 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.
Scamotta, however, cautioned that FX markets face two-pronged risks.
Live events
“As the war drags on, both Tehran and Washington have strong motivations to return to the negotiating table, and there are good reasons to suspect they can strike a face-saving deal as soon as this weekend,” Shamota said.
Look at inflation
Data on Friday showed that US consumer spending rose slightly more than expected in January, along with continued strength in underlying inflation and a tug-of-war in the Middle East, fueling economists’ views that the Federal Reserve will not resume cutting interest rates for some time.
“Recent personal consumption expenditure inflation data tells us that the inflation picture was not looking good even before the Middle East crisis,” Sonu Varghese, global macro strategist at Carson Group, said in a note.
“An already big headache for the Federal Reserve will turn into an even bigger one, and it’s likely that the Fed will not cut rates in 2026 and may even start talking about a rate hike 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 could force the central bank to raise rates this year.
Still, economists remain wary of fiscal tightening in economies where reliance on fuel imports means rising energy costs are likely to weigh on growth.
“It has become very clear that shipping through the Strait of Hormuz may be affected for some time,” Jane Foley, head of FX strategy at Rabobank, said in a note.
“Therefore we have lowered our EUR/USD forecasts on the 1- and 3-month view from 1.16 to 1.14 and 1.15 respectively,” she said.
Yen in the intervention region
Against the Japanese yen, the dollar hit its strongest level since July 2024 and was last trading up 0.2% at 159.67 yen.
Japan is ready to take necessary measures against yen moves that affect people’s lives, Finance Minister Satsuki Katayama said on Friday, adding that he was in close contact with US authorities on foreign exchange issues.
“Policymakers are likely to take a dim view of the impact of exchange rate weakness on already rising import bills,” Scamotta said, adding that pressure to intervene to prop up the battered yen could mount in the coming days and weeks.
Leading cryptocurrency bitcoin rose 1.2% to $71,021, hitting a nine-day high earlier in the session.
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