Dollar Surges Amid Escalating Middle East Conflict

The dollar strengthened as the Middle East conflict heightens, increasing demand for safe-haven assets while other currencies, such as the Australian dollar, faltered. Tensions between the U.S. and Iran pose a more severe crisis than previous oil shocks, potentially affecting global economies and currencies like the yen and the euro.

The dollar rose on Monday as escalating threats in the Middle East conflict dampened risk appetite, fueling demand for safe-haven assets. The Australian dollar, a key indicator of global sentiment, declined amid an equities sell-off across Asia. Japan's top currency diplomat warned his government is prepared to counter foreign-exchange volatility as the yen weakened.

Over the weekend, hopes for de-escalation faded, with U.S. President Donald Trump threatening Iran's electricity grid and Tehran promising retaliation against its neighbors' infrastructure. International Energy Agency (IEA) head reported the crisis surpasses the 1970s' oil shocks. Economies benefiting from positive supply shocks stand to gain, while those affected negatively may struggle.

The dollar index, measuring the U.S. currency against several peers, increased by 0.08% to 99.62. The euro and yen slid amid rising oil prices and inflation concerns, impacting central banks' decisions. The conflict expanded Monday, with large-scale Israeli strikes on Tehran and ballistic missiles launched at Riyadh, exacerbating tensions and market volatility, potentially affecting global financial markets.

(With inputs from agencies.)