Sterling falls to one-month low as dollar strengthens from oil price surge

The British pound slid to $1.3474 on September 14, its weakest reading against the US dollar since August 7. The 0.4% daily drop wasn’t driven by anything happening in London. It was driven by what happened roughly 3,000 miles southeast, in the oil fields of Saudi Arabia. Houthi strikes on Saudi Arabian infrastructure forced the closure of the Kingdom’s main pipeline that bypasses the Strait of Hormuz, one of the most strategically important chokepoints for global energy supplies. Brent crude jumped 3% to $108 per barrel in response, and the dollar did what the dollar tends to do when the world gets nervous: it went up. Why oil moved the currency needle Oil is priced in dollars globally, so when crude surges, demand for dollars rises mechanically as importers need more of them to pay their bills. Layer on top of that the dollar’s traditional role as a safe-haven currency during geopolitical flare-ups, and you get a one-two punch that smaller currencies struggle to absorb. The pound was particularly vulnerable. Britain is a net energy importer, which means higher oil prices directly worsen its trade balance. More expensive energy imports mean more pounds flowing out and more dollars...