Dollar Hits Seven-Week High Amid Energy Shock and Rate Uncertainty

The US dollar has reached a seven-week high on September 2 as investors turn to it amid concerns about economic instability caused by the energy shock and diverging monetary policy paths across major economies.

The conflict between the US and Iran, with the most significant exchange of fire in weeks, has contributed to the increase in demand for the dollar. As a result, the greenback tends to benefit from higher oil prices because the US economy is less exposed to energy shocks than many other major economies.

According to George Brown, senior economist at Schroders, 'We expect the ECB to finish its hiking cycle by the end of the year, while the Federal Reserve will likely be just beginning to raise rates. That should widen rate differentials in favour of the dollar and lead to a weaker euro by year.'

However, rising debt levels and persistent price pressures raise doubts about the long-term appeal of US assets, which could weigh on the dollar.