CAPITALDIGEST MARKET REVIEW, 09/03/2026

US DOLLAR SURGES AS MIDDLE EAST WAR SENDS OIL TO CUSP OF $120

The U.S. dollar jumped on Monday as soaring oil prices sent investors scrambling ​for cash on worries that a protracted Middle East war could severely disrupt energy supplies and hurt global growth. The greenback pared some gains in ‌the Asian afternoon on a Financial Times report that the G7 finance ministers will discuss on Monday a joint release of oil from emergency reserves coordinated by the International Energy Agency, which sent oil prices retreating slightly after they earlier spiked to just shy of $120 per barrel. Still, the euro and sterling were left trading 0.6% and 0.7% lower, respectively, while the Aussie and even the safe-haven ​Swiss franc similarly weakened. “The U.S. dollar is finding no shortage of support from traditional haven considerations and obviously, the United States’ net energy exporter status ​in sharp contrast to most of Europe,” said Ray Attrill, head of FX strategy at National Australia Bank. The broad market rout triggered ⁠indiscriminate selling across assets on Monday. Stocks, bonds and precious metals slid as investors, spooked by the impact of surging oil prices on global inflation and economic growth, turned risk-averse ​and cashed in on some of their most profitable trades. “The longer this goes on, the more exponential the damage becomes in a domino effect, which is exactly what oil ​is now showing to a market that saw some takes last week that things could be a lot worse,” said Michael Every, senior global strategist at Rabobank. “If we are still in the same position this time next week, things could be quite terrifying.” The euro was down 0.6% at $1.1548, having slid to a 3-1/2-month low earlier in the session, while sterling slid 0.7% to $1.3333. Against the Swiss ​franc , the dollar was up 0.43% at 0.7795. The Australian and New Zealand dollars pared earlier losses to trade 0.35% and 0.1% lower, respectively. Analysts have said Asia could ​bear the brunt of the energy price shock, due to the region’s heavy reliance on oil and gas from the Middle East. The dollar was a whisker away from the 159 yen level ‌in Asia, ⁠rising 0.4% to 158.47 , and it gained 0.26% against the South Korean won to 1,485.50, having been up as much as 1% earlier in the session. “The real question is how high and how long prices stay elevated, because that’s what will ultimately determine the economic fallout,” said Deepali Bhargava, regional head of research for Asia-Pacific at ING.

STERLING PULLS BACK AS IRAN WAR SEES INVESTORS FLOCK TO SAFE HAVENS

The British pound slipped for a second straight session on Friday as the widening Iran conflict dominated market sentiment and pushed investors towards safe-haven assets. Sterling ​was last down 0.15% against the dollar to $1.3335 on the day, and ‌set for a weekly decline of around 1.1%. Against the euro , the pound was broadly steady at around 86.83 pence, with the euro also trading lower against the dollar which has strengthened amid ​the Middle East crisis, Hopes for a de-escalation faded this week as attacks persisted ​and the conflict broadened, raising uncertainty about how long the crisis could ⁠last. Rising oil prices have fuelled inflation worries, particularly for energy-importing countries such as ​the UK, and have prompted a shift in interest rate expectations. The Bank of England, due ​to announce its latest interest rate decision later this month, is now no longer expected to cut policy then. Markets have pared back chances of a March cut to just 15%, down from roughly ​75% a week ago, according to LSEG data. Traders were last pricing in an around ​65% chance of a rate cut by the end of the year, after still expecting two cuts ‌from ⁠the Bank of England this year at the end of February. “Given the uncertainty from what’s happening in the Middle East, it makes more sense for the Bank of England to kind of just keep rates on hold and assess how the situation in ​the Middle East plays ​out before cutting,” Hardman ⁠said. Rate-cut expectations being pushed back could support the pound, he added. “But in terms of the bigger picture, obviously the energy price ​shock is a bigger negative for the pound, really and I ​think that ⁠would outweigh any support for the pound from the Bank of England holding back on cutting rates this month,” he said. The yield on British government bonds picked up again Friday, with ⁠interest-rate ​expectation sensitive 2-year gilt yields last trading roughly 9 ​basis points higher at 3.894% after hitting their highest level since mid-October earlier in the day

FOREX DOLLAR SET FOR STEEPEST WEEKLY GAIN IN A YEAR AS IRAN CRISIS BOOSTS HAVEN DEMAND

The U.S. dollar held broadly steady in Asian trade ​on Friday and was poised for its steepest weekly gain in more than a year as the escalating conflict in the Middle East drove demand for safe-haven ‌assets. The euro and yen remained on the back foot as the crisis drove oil prices ever higher, spurring inflation risks in economies dependent on energy imports and upending policy expectations for the Federal Reserve and other central banks. Earlier hopes for a de-escalation gave way to fresh uncertainty, with Iran warning that Washington would “bitterly regret” the sinking of an Iranian warship. U.S. President Donald Trump said he wanted to be involved in choosing ​Iran’s next head of state after U.S. and Israeli air strikes killed Supreme Leader Ali Khamenei in the early moments of the war. “If the Middle Eastern conflict ​continues at its current intensity, it’s likely to bring sustained higher inflation, a stronger U.S. dollar, and a vastly reduced chance of Fed ⁠rate cuts,” IG market analyst Tony Sycamore wrote in a note. The dollar index , which measures the greenback against a basket of currencies, was trading a touch lower at 99.03, still on ​course for a 1.4% gain this week that would be the most since November 2024. The euro was little changed at $1.161 and set for a 1.7% slide this week. The yen fell ​0.2% to 157.83 per dollar. Sterling nudged up 0.02% to $1.3358. The war intensified on Thursday, with U.S. and Israeli jets hitting areas across Iran, and Gulf cities coming under renewed bombardment. In a phone interview with Reuters, Trump said Mojtaba Khamenei, a son of the late supreme leader who has been considered a favorite to succeed his father, was an unlikely choice. The greenback was one of a handful of winners in a volatile ​few sessions that have dragged stocks, bonds and, at times, even safe-haven precious metals lower. “Broadly speaking, we are seeing most clients reduce risk across both G10 and EM currencies,” said ​Nathan Swami, head of FX trading for Japan, Asia North, Asia South and Australia at Citi in Singapore. “When the conflict started over the weekend, we saw hedgers and custodians buy dollars in many of the onshore ‌markets. Central bank ⁠support has kept Asian FX markets in check for now, but we think more depreciation pressure will build up the longer the conflict lasts.” Bank of Japan Deputy Governor Ryozo Himino said in parliament that the weak yen was pushing up import costs and may affect underlying inflation.

STERLING SLIDES AS MIDDLE EAST CONFLICT LIFTS OIL PRICES, MUDDIES RATE OUTLOOK

The British pound tumbled to its lowest in three months on Tuesday as the intensifying conflict in the Middle East drove oil prices higher, rekindling ​inflation fears and prompting traders to trim rate-cut bets. The currency slipped 0.65% ‌against the dollar to $1.3319, and was largely unchanged versus the euro at 87.14 pence The latest bout of risk aversion piled onto existing pressure on the currency, which has already been weighed down by ​concerns over the UK’s economic outlook and domestic political uncertainty. At her budget update speech, finance minister Rachel Reeves said Britain’s economy is forecast to grow ⁠by 1.1% this year, citing the latest projections from the Office for Budget Responsibility. The ​new prediction was weaker than a forecast of 1.4% growth for 2026 in the ​OBR’s previous outlook published in November. “This government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet ​more uncertain,” she said.

US DOLLAR DIPS FROM MULTIMONTH HIGHS ON MIDDLE EAST OPTIMISM

The U.S. dollar slipped on Wednesday, pulling back from the multimonth highs it touched ​in the previous session, as investors unwound safe‑haven positions on rising hopes that the Middle East conflict may prove shorter‑lived than initially feared. Improved sentiment was underpinned ‌by a New York Times report on Wednesday that Iran’s Ministry of Intelligence had signalled to the U.S. Central Intelligence Agency a willingness to explore talks to end the war, citing officials briefed on the matter. The report lifted risk appetite and weighed on the dollar. “We’re seeing a bit of improvement in risk sentiment across the board, mostly headline-driven, but FX is not exclusive there. So basically, we’re retracing some of the safety that ​we’ve seen throughout this week,” said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey. “The conflict in Iran is certainly not over and ​there’s a lot we’re waiting for in terms of information to see how it plays out. And prior to that, we had a ⁠lot of AI-related concerns. I don’t think they’re over. Certainly there could be impetus for further reduction in risk, or risk-off or flight to safety.” In afternoon trading, the euro edged up ​0.2% to $1.1632, having hit its weakest level since late November on Tuesday. That followed data released on Tuesday that showed euro zone inflation accelerated more quickly than expected in February, before the ​start of the Iran conflict. The dollar index , which tracks the U.S. currency’s performance against six others, fell 0.3% to 98.83, having earlier reached its strongest level since November 28. Against the yen , the dollar slid 0.4% to 157.02 yen. On Tuesday, the greenback had ascended to its highest level since January 23, when the New York Federal Reserve on the dollar/yen pair. With the Iran war still raging, U.S. economic ​data on Wednesday took a back seat. The dollar showed little reaction to data showing U.S. private payrolls increased by the most in seven months in February, though data for the prior ​month was revised sharply lower. Private employment rose by 63,000 jobs last month, the largest gain since July 2025, after a downwardly revised 11,000 increase in January. A report showing U.S. services sector activity surging to more ‌than a ⁠3-1/2-year high in February also had marginal impact on the currency market. The Institute for Supply Management said its nonmanufacturing purchasing managers index increased to 56.1 last month, the highest reading since July 2022, from 53.8 in January. Economists polled by Reuters had forecast the services PMI easing to 53.5.