Dollar Soars as Iran Sanctions Boost Risk Appetite

The US dollar has staged a three-day rally against its lowest levels since May amid escalating trade tensions between the US and Canada, and the imposition of sweeping sanctions by Washington against Iran.

The launch of Operation 'Economic Outcast' against Iran, which includes sanctions against more than 60 organisations, has boosted the dollar. Oil prices fell on the back of the news, but the outlook for Brent looks 'bullish'. The long-term prospects of Iran's isolation are negative for the oil market, implying a further reduction in supplies and rising prices.

The question is how China will react, as it buys around 90% of its oil from Iran. Without China's cooperation, cutting Iran off from the global oil market would be virtually impossible. Beijing's reluctance to compromise with the US risks triggering a new trade war and a slowdown in the global economy.

The breakdown in negotiations between the US and Canada has led to the imposition of large-scale tariffs on Ottawa, which Canada has promised to retaliate dollar for dollar, risking further escalation.