Middle East Conflict Boosts US Dollar Amid Safe-Haven Demand

The U.S. dollar gained significantly this week as the Middle East conflict intensified, prompting demand for safe-haven assets. The euro and yen depreciated amidst soaring oil prices and inflation fears. Central banks face pressure as currency markets react to geopolitical uncertainty and changing policy expectations.

The U.S. dollar remained largely stable in Asian trading on Friday, poised for its largest weekly gain in over a year as escalating conflict in the Middle East bolstered safe-haven demand.

The euro and yen struggled against a backdrop of rising oil prices and heightened inflation risks, affecting economies reliant on energy imports. Policy expectations for the Federal Reserve and other central banks were disrupted amid fresh uncertainty, following Iranian warnings of retribution after U.S. and Israeli airstrikes.

Heightened conflict has influenced traders, pushing back on easing timelines for the Federal Reserve and leading to expectations for rate adjustments in Europe, with energy price surges stoking inflation fears. Meanwhile, stable U.S. employment data was largely overshadowed as market focus remained on geopolitical developments.