FOREX: Euro sags, dollar gains as Iran war lifts energy prices

SINGAPORE – The euro fell, the Swiss franc rose, and the U.S. dollar surged Monday as investors sought safe-haven assets following the U.S. and Israel’s bombing of Iran, which killed Supreme Leader Ayatollah Ali Khamenei, raising the risk of a prolonged Middle East conflict.

The Swiss franc climbed as much as 0.4% to 0.7661 per dollar and surged 0.6% to its strongest level since 2015, while the euro traded at 0.9030 against the franc in early Asian trading before easing slightly.

“You don’t know how long this is going to last, how high oil is going to go, or how long the Strait of Hormuz will be closed,” said BNZ strategist Jason Wong in Wellington. “The initial reaction is mild risk-off, and you just have to take each day as it comes.”

The Israeli military confirmed Khamenei’s death at 86, which was reported by Iranian state media, triggering a high-stakes succession process. The conflict escalated Monday after Iran retaliated, with the Revolutionary Guard striking three U.S. and British oil tankers and explosions reported in Dubai and Doha.

Oil prices jumped about 9% early Monday amid concerns over disruptions to sea-borne trade.

After initial gains, the Japanese yen weakened 0.2% to 156.235 per dollar as traders assessed the impact of higher energy costs and the potential effect of the conflict on interest rates.

“We had already viewed the likelihood of an interest rate hike in March or April as low, but amid rising uncertainty from developments in the Middle East, the Bank of Japan is likely to adopt a more cautious stance, further reducing the probability of a near-term rate hike,” analysts at Morgan Stanley MUFG said in a research note.

The euro fell 0.3% to $1.1784, and the British pound slid 0.3% to $1.3451 due to concerns over European energy supply.

“The euro is in a difficult spot,” Wells Fargo analysts said. “Europe’s natural gas storage refill season is about to begin, and the EU is heading into it with record-low gas levels, meaning it will need to buy a large amount of energy just as prices could surge.”

Risk-sensitive currencies, including the Australian dollar, tumbled 1.2% before trimming losses to 0.3%, trading at $0.7096. The New Zealand dollar declined 0.2% to $0.5979 after bouncing back from an earlier 0.8% drop.

China’s yuan in offshore trading weakened 0.1% to 6.868 per dollar after the People’s Bank of China lowered its daily onshore fixing to curb appreciation. As a major buyer of Iranian oil, China’s currency movements reflect energy import concerns.

Currencies of major exporters, including the Canadian dollar and Norwegian krone, remained stable in Asian morning trade.

Israeli military spokesperson Lieutenant Colonel Nadav Shoshani said that many targets remain, but ground force deployment is not currently planned.

U.S. President Donald Trump told the Daily Mail the military operation could last about a month. “We figured it will be four weeks or so. It’s always been about a four-week process,” he said.

-Reporting by Tom Westbrook and Gregor Stuart Hunter; Editing by Stephen Coates and Christopher Cushing/Reuters