Dollar heads for worst day in over a month as oil prices decline

Energy prices and the greenback have been moving in tandem since the launch of US and Israeli strikes on Iran on Feb. 28, turning the dollar into a petrocurrency

• Dollar sees biggest drop since Feb. 9 as oil prices fall
• Oil prices dip as hopes rise for Strait of Hormuz reopening
• Central banks to decide rates amid oil-driven market volatility

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The dollar is headed for its worst day in over a month as hopes that shipping traffic through a key oil route will resume pushed oil prices lower.

The Bloomberg Dollar Spot Index fell on Monday from its highest level of the year, trading 0.6% lower for its biggest drop since Feb. 9. US crude sank below $100 a barrel as US President Donald Trump is raising pressure on nations to help reopen the Strait of Hormuz, a vital maritime thoroughfare linking the Persian Gulf to international markets.

“Oil markets continue to set the tone in FX, and Brent has softened a bit here as we emerge from the weekend with some marginal optimism regarding the outlook for passage through the Strait of Hormuz,” said Alex Cohen, a foreign-exchange strategist at Bank of America Corp. “The dollar looks to be consolidating a bit here, after ending last week on a high-note.”

Energy prices and the greenback have been moving in tandem since the launch of US and Israeli strikes on Iran on Feb. 28, turning the dollar into a petrocurrency, according to some analysts, in part due to the US’s position as the world’s top oil producer and dollar’s role as the main currency for global crude trade.

US industrial production rose modestly in February, lifted by a second month of gains in manufacturing and mining output. The Federal Reserve is expected to keep interest rates steady Wednesday as inflation concerns are elevated after the recent spike in oil prices. The Bank of England, European Central Bank and the Bank of Japan as well as the central bank of Australia are also deciding on rates this week among others.

All major currencies in the Group of 10 have lost ground against the dollar since the conflict erupted, with the yen lagging behind most peers. Authorities in Japan reiterated that they are ready to act to aid the local currency if necessary.

“As the war with Iran continues, oil prices are dictating the mood and headlines from the Strait of Hormuz are driving markets,” wrote Bob Savage, head of markets strategy and insight at BNY. “Concerns for the week revolve around how central bankers see through these matters.”