US dollar hovers near 2026 highs as oil's rise spurs hawkish central bank bets

The dollar extended its gains on Thursday to hold near its strongest levels this year as surging crude prices threatened to spur inflation and force central banks to adopt more hawkish ​policy stances.

The dollar advanced against the euro, yen, sterling and kiwi for a third straight day as oil prices surged, battering investor confidence.

Surging oil prices will push up energy ‌costs and crimp global growth, economists warn, with risks rising with the duration of the conflict.

"Moves in the currencies have so far tracked countries’ imported energy dependence and the associated terms of trade effects," said Carol Kong, economist and currency strategist at Commonwealth Bank of Australia in Sydney.

"Pricing for ECB policy has lifted much more than the Fed but failed to boost EUR/USD because Europe is at most risk to an energy price shock while the US ​is energy independent."

Oil market volatility has continued to climb with Iran saying the world should be ready for crude at $200 a barrel as its military attacked merchant ships on Wednesday and ​vessel traffic through the Strait of Hormuz dwindled to a trickle, sparking a surge in Brent crude futures of more than 10 percent at one point to ⁠highs of $101.59 per barrel.

The euro slipped 0.2 percent to $1.1540 in Asian trading, nearing its lowest level since November.

Japan's yen briefly depreciated past the 159-per-dollar mark, easing as much as 0.2 percent to 159.23 and ​approaching its weakest level since July 2024.

The Australian dollar dropped 0.4 percent to $0.7122 with the New Zealand dollar in pursuit, down 0.3 percent at $0.5897.

The British pound dwindled 0.3 percent to $1.3374, a little above its weakest point of ​the year so far.