U.S. Dollar Surges Amid Middle East Tensions: Poised for Biggest Weekly Gain in a Year

The U.S. dollar held steady in early Asian trading on Friday, buoyed by escalating tensions in the Middle East that have sent investors rushing toward safe-haven assets. With conflict intensifying, the greenback is on track for its largest weekly gain in more than a year, reflecting heightened uncertainty in global markets.

The euro and Japanese yen continued to lag as rising oil prices stoked inflation worries in energy-importing economies. Central banks, including the Federal Reserve, now face altered expectations for policy moves, with market watchers predicting fewer chances of near-term rate cuts due to potential sustained inflation.

The crisis deepened after Iran warned the United States of consequences following the sinking of an Iranian warship, while U.S. President Donald Trump claimed he wanted input on Iran’s next leadership. Analysts suggest that if the conflict continues, a stronger U.S. dollar and higher inflation could become persistent trends, further influencing global financial markets.

The dollar index, which tracks the greenback against a basket of currencies, was slightly lower at 99.00 but remains set for a 1.4% weekly gain—the largest since November 2024. Meanwhile, the euro hovered at $1.1612, the yen at 157.5 per dollar, and sterling at $1.3361. Investors are also keeping a close eye on upcoming U.S. employment data, which could provide further direction for currency movements.

Despite economic data showing stable labor conditions in the U.S., the market remains focused on geopolitical risks. Rising energy prices, driven by Middle East tensions, have reshaped interest rate expectations for the Fed, Bank of England, and European Central Bank. Analysts note that the greenback’s upward momentum is likely to continue as long as oil prices remain elevated and geopolitical uncertainty persists.

source: cnbc