US Dollar Strengthens Amid Middle East Crisis and Global Rate Speculation
The US dollar edged higher on Monday, buoyed by safe-haven demand as investors confronted the risk of a wider Middle East conflict and a series of crucial central bank meetings scheduled this week.
With Israel and Iran continuing hostilities and the Strait of Hormuz — a vital corridor for global oil shipments — under potential threat, financial markets are bracing for energy supply disruptions and increased inflationary pressure, which in turn is driving investors toward the greenback.
Key Market Movements (as of Monday):
-
USD/JPY: Up 0.14% to 144.30
-
EUR/USD: Down 0.14% to 1.1534
-
USD/CHF: Flat at 0.81
-
Dollar Index (DXY): Steady at 98.25
-
Gold: Up 0.22% to $3,435.50/oz, near April’s record high
The dollar also posted mixed performance against risk-sensitive currencies, with the Aussie and Kiwi dollars gaining slightly, reflecting tentative optimism in broader markets.
Middle East Escalation: The Oil and Currency Nexus
Tensions surged after Israel conducted surprise airstrikes on Iran, reportedly targeting nuclear facilities and ballistic missile sites, causing Tehran to cancel planned nuclear negotiations with the U.S. over the weekend.
The risk of Iran retaliating by choking off the Strait of Hormuz, through which nearly 20 million barrels of oil flow daily, has made energy markets skittish and stoked fears of global stagflation — the deadly mix of inflation and stagnation.
According to ING analysts, “markets are pricing in a larger risk premium for potential oil supply disruptions,” which supports safe-haven assets like the dollar, gold, and long-term U.S. Treasuries.
Upcoming Central Bank Decisions: A Week of High Stakes
Amid the geopolitical volatility, markets now turn to an intense central bank calendar, headlined by the U.S. Federal Reserve’s meeting on Wednesday.
While the Fed is widely expected to hold interest rates steady, traders will closely analyze the tone of its policy statement and any revisions to growth and inflation projections. The U.S. economy has shown softening data recently, but price pressures remain elevated, keeping investors on edge.
“If the Fed delivers a dovish hold, the dollar could resume weakening,” says Win Thin, global head of market strategy at Brown Brothers Harriman.
In contrast, a hawkish pause — where the Fed maintains high rates and signals concern over inflation — would likely reinforce dollar strength in the short term.
Other key central banks on watch this week:
-
Bank of Japan (BoJ) – Tuesday (expected to maintain ultra-loose policy)
-
Bank of England (BoE) – Thursday
-
Sweden’s Riksbank & Norway’s Norges Bank – Also announcing policy decisions
Global Trade, Trump’s Tariffs, and the Dollar Outlook
Despite its current rally, the US dollar has lost over 9% year-to-date, weighed down by trade war uncertainty, particularly from U.S. President Donald Trump’s push to renegotiate global trade terms. Investors await developments in G7 sideline meetings, especially any clarity on unresolved deals with the EU and Japan.
Market direction in the coming weeks will hinge not only on monetary policy but also on geopolitical diplomacy and trade clarity — or lack thereof.
Gold and Treasuries Reflect Market Caution
As investors sought safety, gold prices rose and longer-dated U.S. Treasury yields dipped slightly, reflecting a flight to quality amid both war risk and monetary ambiguity.
“The shift toward lower growth is very much upon us,” said Chris Weston, head of research at Pepperstone, predicting that the Fed’s communication will aim to strike a neutral tone.
Conclusion: Dollar Resilience Faces Double Test
The US dollar’s safe-haven appeal is back in focus, but its staying power will depend on two fronts:
-
Whether geopolitical tensions escalate or stabilize
-
Whether the Fed maintains policy conviction amid weakening macro data
With inflation, oil, and international diplomacy all in play, currency markets are set for another volatile yet defining week.
