FX Deep Dive: Dollar King Returns as Energy Shock Splits G10 Currencies

Singapore — The escalating conflict in the Middle East has clarified the pecking order in the Foreign Exchange market: The US Dollar (USD) is reigning supreme, supported by the dual pillars of safe-haven demand and US energy independence.

EUR and EM Under Pressure

Commerzbank analysts argue the current environment provides a perfect storm for EUR/USD downside. As a net energy importer, the Eurozone is economically exposed to rising crude prices, unlike the US, which benefits from its status as a net oil exporter.

• EUR/USD: The pair has come under sustained selling pressure, trading lower as the divergence in economic resilience becomes apparent.
• Emerging Markets: The strain is visible in Asia. The Indian Rupee (INR) fell to a monthly low, with USD/INR rising to 91.75. India imports nearly 90% of its oil needs, making the currency highly sensitive to Brent crude spikes.

The Commodity Currency Split

Not all non-USD currencies are suffering equally. The Canadian Dollar (CAD) held gains against the Greenback, trading around 1.3660, as the correlation between the Loonie and WTI crude prices offered a buffer against the broader risk-off sentiment.

Central Bank Watch: BOJ's Hawkish Signal

amid the chaos, a notable signal emerged from Tokyo. Bank of Japan (BoJ) Deputy Governor Himino stated Monday that the central bank remains open to raising interest rates toward “neutral” if underlying inflation accelerates.

• Market Implication: While the Yen (JPY) usually benefits from safe-haven flows, widening rate differentials have hampered its performance. However, if the oil shock translates to Japanese inflation, the BoJ may be forced to tighten faster than the market anticipates, potentially creating a violent reversal in USD/JPY.