Currency Markets Brace for Middle East Tensions as Dollar Strengthens

The U.S. dollar firmed amid Middle East tensions following U.S. attacks on Iran's nuclear sites. Investors sought safety in the currency market while oil prices soared. Analysts highlight inflationary concerns and potential escalation impacts on safe-haven currencies as markets await Iran's response.

The U.S. dollar firmed on Monday as investors sought a safe haven amidst increasing tensions in the Middle East following U.S. attacks on Iranian nuclear sites. As oil prices hit a five-month high, global stocks faced a downturn. The incident has fueled conflict in the region.

Currency markets showed restraint, with the euro declining 0.33% and the Australian dollar, perceived as a risk proxy, dropping to a one-month low, reflecting market anxiety. Analysts, such as Carol Kong from Commonwealth Bank of Australia, emphasize that the currency markets remain in a 'wait-and-see' mode, closely monitoring Iran's next move.

While the U.S. dollar rose against the yen, the shadow of its dominance affected other Asian currencies. Japan's dependency on Middle Eastern oil suggests future price impacts if tensions persist. Iran's threat to close the Strait of Hormuz further complicates global oil shipments, intensifying geopolitical uncertainties.

(With inputs from agencies.)