Energy price surge sends Dollar lower, strengthens Euro, Yen, Sterling

The U.S. dollar retreated from multi-month highs this week as soaring energy prices disrupted global interest rate expectations, according to a Reuters report on Friday.

The report highlighted that the U.S. Federal Reserve is now the only major central bank not expected to hike rates this year, reflecting a cautious approach amid rising geopolitical tensions in the Middle East, which have significantly affected global oil and gas supply.

In Nigeria, the naira depreciated to N1,362 per dollar on Wednesday, according to Central Bank of Nigeria (CBN) data. Trading was halted on Thursday due to the Eid al-Fitr public holiday.

Globally, the dollar index weakened 1.1% to 99.359, marking its largest weekly drop since late January. Investors reassessed monetary policy expectations following a surge in energy prices driven by the escalation of the US-Israel conflict with Iran, which has disrupted Middle East energy exports and pushed Brent crude futures up by about 50%.

Analysts noted a growing divergence in global monetary policy. While the Federal Reserve maintained a wait-and-see stance, other central banks signaled tighter policies to counter energy-driven inflation.

The European Central Bank held rates steady but indicated a possible hike by June.

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The Bank of England signaled readiness for further action, with markets pricing in approximately 80 basis points of hikes by year-end.

The Bank of Japan left open the possibility of a rate increase as early as April, boosting the yen.

The Reserve Bank of Australia raised interest rates for the second consecutive month, with expectations of additional hikes.

“The shift reflects broad-based weakening of the dollar as investors respond to rising energy costs and the likelihood of tighter global monetary policies,” said an economist at a London-based investment firm.

Meanwhile, the Federal Reserve left interest rates unchanged, with Chair Jerome Powell noting it was too early to gauge the full economic impact of the ongoing conflict.

In contrast, energy market volatility has prompted countries like India, where the rupee fell to record lows, to increase forward dollar interventions to nearly $100 billion.

Other emerging markets are also adjusting policies in response to inflation pressures. The South African Reserve Bank held its benchmark rate at 6.75%, maintaining caution amid global uncertainties.

Overall, the dollar’s retreat underscores growing investor caution, as geopolitical instability, soaring energy prices, and diverging central bank policies reshape the outlook for major currencies.