Goldman Sachs says dollar gaining strength as Middle East conflict drives energy prices higher

Goldman Sachs's The Goldman Sachs Group, Inc. ↘ 1.26% chief foreign exchange and emerging markets strategist Kamakshya Trivedi told Bloomberg Television that the U.S. dollar is beginning to appreciate as the ongoing Middle East conflict drives up oil and gas prices globally, with particularly acute effects on European energy markets.

Energy Shock Fuels Dollar Strength

The U.S. Dollar Index has climbed above 101 this week, extending a multi-session recovery as escalating hostilities between the United States and Iran continue to disrupt energy supply routes. The greenback has strengthened against most major peers, with Trivedi highlighting the inflationary implications of rising energy costs and their effect on currency markets.wikifx+2

European gas prices have surged nearly 50% since late June, with the Dutch Title Transfer Facility benchmark exceeding €62 per megawatt-hour as disruptions to traffic through the Strait of Hormuz and diverted liquefied natural gas cargoes have tightened the market. Rabobank noted that TTF benchmark gas futures surged more than 15% over just eight consecutive sessions as of July 23, driven by the escalating U.S.-Iran conflict.zandersgroup+2

Broader Market Implications

The energy price shock has reignited inflation concerns, pushing Federal Reserve rate hike expectations higher and supporting the dollar's advance. West Texas Intermediate crude rose above $84 per barrel this week as continued strikes and threats to shipping routes raised concerns about global energy supplies.fxstreet+2

The EUR/USD pair traded near 1.1400 as broad dollar strength outweighed softer U.S. economic data. The pound also weakened against the greenback, while USD/JPY climbed above 163 for the first time since 1986.fxstreet

Reuters reported that Washington launched new waves of strikes against Iranian military installations in mid-July aimed at limiting Tehran's ability to attack commercial shipping, with Iran's Revolutionary Guard Corps threatening to close "all other export corridors that benefit the U.S. and its allies". The conflict, which began in early March with U.S.-Israeli military operations against Iran, has disrupted energy markets for months, with Goldman Sachs previously warning that oil prices could exceed $100 per barrel if shipping disruptions persist.reuters+1