FOREX-Dollar firms, euro stumbles as energy prices surge

By Gregor Stuart Hunter

SINGAPORE, March 4 (Reuters) - The dollar held firm near a three-month high in Asia on Wednesday, with investors retreating from the euro as the conflict in the Middle East sparked fears of a sustained rise in energy prices and took a heavy toll on stock markets.

The euro EUR= slipped 0.2% to $1.1590, 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 at a higher than expected level 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 resumed their selloff on Wednesday 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 strikes on Iran disrupts energy exports from the Middle East, with Tehran's retaliatory 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 1.9% on Wednesday to $82.94 per barrel, hitting the highest since July 2024 and taking gains since Friday to 14%. European gas prices TFMBMc1 are up 70% since the end of last week.

"Suddenly, the 'good place' of the ECB is being challenged, and we doubt we will see that resolved in the very near term," analysts from ING wrote in a research report. "The possibility of ECB rate hikes poses a serious risk to carry trades and could trigger a significant widening of eurozone government bond (EGB) spreads."

The British pound GBP= slipped 0.3% to $1.3323.

The U.S. dollar index =USD, which measures the greenback's strength against a basket of six currencies, was up 0.1% at 99.208, after earlier reaching its strongest level since November 28.

Against the yen JPY=, the dollar was down 0.2% at 157.52 yen.

The U.S. currency was also up 0.1% versus the Chinese yuan CNH= in offshore trade, changing hands at 6.9287 yuan after PMI data for February diverged, with official gauges recording a slump in activity even as a private-sector counterpart blew past estimates.

The Australian dollar AUD= was down 0.6% at $0.6996, even as data showed GDP growth for the fourth quarter picked up speed.

"The headline figures may be overstating the weakness in private demand," analysts from Capital Economics wrote. "Although the underlying details were a mixed bag, we suspect the RBA will still be concerned that growth is running above potential in Australia."

The New Zealand dollar NZD= was up 0.1% at $0.5898.

Bitcoin BTC= was off 0.4% at $67,776.69, while ether ETH= fell 0.5% to $1,958.81.