Dollar toppled as oil shock turns central banks hawkish

Core Viewpoint - The ongoing U.S.-Israeli war on Iran has shifted investor expectations regarding Federal Reserve interest rate cuts, with the likelihood of even one cut now seen as distant, while other central banks are preparing for rate hikes in response to rising energy prices and inflation concerns [1][10]. Currency Movements - The euro is trading at $1.1569, reflecting a weekly gain of 1.4%, while the yen has gained 1.2% to stabilize around 157.88, and sterling is up more than 1.5% at $1.3422 [2][10]. - The Australian dollar is trading just below 71 cents, achieving a weekly gain of 1.5% following the Reserve Bank of Australia's second consecutive interest rate hike [7][11]. Central Bank Actions - The European Central Bank (ECB) has maintained rates but is expected to discuss potential hikes next month due to inflation driven by energy prices, contrasting with the Fed's more cautious approach [10][11]. - The Bank of Japan has indicated the possibility of a rate hike as soon as April, surprising investors who anticipated a further decline in the yen [11]. - The Bank of England has also kept rates on hold but indicated readiness to act, leading to significant market reactions [11]. Energy Prices and Economic Outlook - Benchmark Brent crude futures have surged approximately 50% since the onset of the U.S.-Israeli war on Iran, severely impacting Middle Eastern energy exports [10]. - The dollar index remains steady at 99.359 but is on track for a 1.1% weekly decline, the largest since late January, although analysts believe a prolonged decline is unlikely [8][11]. - The ongoing conflict is expected to increase the U.S. dollar's value due to safe-haven demand and the U.S. position as an energy exporter [9][11].