FOREX-Dollar firms, euro under pressure as energy prices surge

By Gregor Stuart Hunter

SINGAPORE, March 4 (Reuters) - The dollar rallied to a three-month high in early trading in Asia on Wednesday, with investors retreating from the euro as the growing conflict in the Middle East sparked fears of a sustained rise in energy prices.

The euro EUR= traded down 0.1% at $1.1604, extending losses into a third day after earlier hitting its weakest since late November. That followed data released on Tuesday which showed euro zone inflation rising more than expected in February before the start of the Iran conflict.

"The impact of the Iran war on EUR/USD boils down to one thing: energy," said George Saravelos, global head of FX research at Deutsche Bank. "There is a negative supply shock under way which represents a direct tax on Europeans that has to be paid to foreign producers in dollars."

Financial markets turned sharply risk-off on Tuesday as growing fears of a surge in inflation rippled across stocks and bonds after Israeli and U.S. forces pounded targets across Iran, prompting a rush for cash among investors.

Global oil and gas prices have jumped as the U.S.-Israeli war on Iran halts energy exports from the Middle East, with Tehran's attacks on ships and energy facilities closing navigation in the Gulf and forcing production stoppages from Qatar to Iraq.

The benchmark Brent crude oil contract LCOc1 gained 5.4% on Tuesday to $81.96 per barrel, hitting the highest since July 2024 at one point, taking gains since Friday to 12%. European gas prices TFMBMc1 are up 70% since the end of last week.

The U.S. dollar index =USD, which measures the greenback's strength against a basket of six currencies, was steady at 99.103, its strongest since November 28.

Against the yen JPY=, the dollar was down 0.1% at 157.555 yen.

Against the Chinese yuan CNH=, in offshore trade the dollar was down 0.1% at 6.9139 yuan ahead of the release of official and private sector PMI data for February.

The Australian dollar AUD= was down 0.1% at $0.7028 after GDP data for the fourth quarter beat expectations. The New Zealand dollar NZD= was down 0.1% at $0.5886, as the British pound GBP= slipped 0.1% to $1.3340.

Bitcoin BTC= was up 0.7% at $68,533.21, while ether ETH= rose 1.1% to $1,990.99.