Dollar Rises as Investors Flee Middle East War Risks
The US dollar strengthened as investors sought safe-haven assets amid escalating tensions in the Middle East, with the dollar index rising 0.29 per cent to 99.83 after posting its first weekly decline since the conflict began.
The rally comes as surging oil prices fuel inflation concerns, prompting central banks to adopt a more hawkish stance. The euro fell 0.38 per cent to $1.1526, while the Japanese yen weakened 0.22 per cent to 159.55 per dollar. The British pound also slipped 0.37 per cent to $1.329.
Commodity-linked currencies were hit harder, with the Australian dollar dropping 0.95 per cent to $0.6956 and New Zealand’s kiwi declining 0.7 per cent to $0.5793, as equities across Asia came under heavy selling pressure. Japan’s Nikkei index plunged by as much as five per cent at one point during trading.
Investor sentiment has shifted sharply since the outbreak of the US-Israeli conflict with Iran in late February. Prior to the crisis, markets had anticipated two interest rate cuts by the US Federal Reserve this year. However, rising geopolitical risks and inflationary pressures have clouded that outlook.
Hopes of a de-escalation were dampened over the weekend after Donald Trump threatened further action against Iran, including potential strikes on its electricity infrastructure. Tehran responded with warnings of retaliation against neighbouring countries and signalled that the critical Strait of Hormuz shipping route would remain closed.
The growing crisis has raised alarm among global energy experts. Fatih Birol, head of the International Energy Agency, warned that the situation could surpass the impact of the oil shocks of the 1970s, posing a significant threat to the global economy.
Tensions escalated further on Monday as Israel launched large-scale strikes on Tehran, while Saudi Arabia reported that ballistic missiles had been fired towards Riyadh, intensifying fears of a broader regional conflict.
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