SINGAPORE/LONDON, March 31 (Reuters) - The dollar is headed for its biggest monthly gain since July on Tuesday and stands out as the strongest so-called safe asset, as war in the Middle East set oil prices surging and nearly everything else sinking, raising the risk of a global recession.
Developed market currencies were broadly steady on the day, with the Japanese yen a whisker stronger at 159.5 per dollar, the euro up a touch at $1.1477 and the pound 0.26% higher at $1.3217.
But still all three were set for March falls of more than 2%. For the euro and pound, that is the largest drop since July, and since October for the yen.
The dollar has been supported by the U.S. status as an energy exporter and by investors' flight to cash over the past month of conflict.
The latest news from the war, including a Wall Street Journal report that U.S. President Donald Trump was willing to end attacks on Iran without forcing open the Strait of Hormuz, did little for currencies on Tuesday, but did underscore their monthly moves.
Tehran also attacked and set ablaze a fully loaded crude oil tanker off Dubai.
"The lack of a clear plan to reopen the Strait continues to pose upside risks to global energy prices," said Lee Hardman, senior currency analyst at MUFG.
"The potential for a bigger hit to growth outside of the U.S. continues to encourage a stronger U.S. dollar," he said.
Asian currencies have suffered some of the largest losses and, on Tuesday, the dollar pushed over 1% higher against South Korea's won , at one point to 1,538 won, levels touched only in the wake of the global financial crisis in 2009 and the Asian financial crisis in 1997 and 1998.
The dollar index, which tracks the unit against six main peers, touched its highest since last May at 100.64 and, was last sitting at 100.4, up 2.8% through March. <=USD>
The euro saw little reaction to data showing euro zone inflation soared past the European Central Bank's 2% target this month as surging oil and gas costs drove up headline prices, but the jump was smaller than expected and core inflation declined.
WATCHING THE YEN
Also top of mind for currency markets were renewed threats of intervention from Tokyo, which served to spare extra selling pressure on the yen , currently at its weakest since July 2024.
Finance Minister Satsuki Katayama on Tuesday repeated Tokyo's readiness to respond "on all fronts" against volatile moves, saying they were seeing "speculative moves heightening in the currency market," as well as in the oil futures market.
The dollar has stood tall since the war began over other perceived safe assets, not just the yen.
A looming inflation spike has hurt bonds. A positioning clearout has sunk gold, while the energy shock hurts Japan's terms of trade and Swiss authorities have indicated they would intervene to stem any steep gains for the franc.
The dollar is up 4% for the month on the franc , at 0.80 francs, and has broken resistance levels for the Aussie and kiwi in recent sessions.
The main risk to the dollar might come from labour data due out in the liquidity vacuum of Good Friday, or, warned strategists at Union Bancaire Privee, a breakdown in the relationship that usually sees the dollar higher if stocks fall.
"FX – equity correlations have been quite stable since the outbreak of the conflict, though this could change if markets move to price in a more prolonged conflict – with still uncertain outcomes," they said.
Reporting by Tom Westbrook in Singapore and Alun John in London; Editing by Lincoln Feast, Alex Richardson and Arun Koyyur
