Dollar Rises on Middle East Conflict

The dollar index climbed above 98 on Monday, hitting a five-week high as investors sought safe-haven assets amid the escalating war in the Middle East. The US and Israel carried out military strikes on Iran over the weekend that resulted in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei, and the effective closure of the Strait of Hormuz. Tehran retaliated by targeting US assets across the region, raising concerns of a broader conflict. Meanwhile, data on Friday showed US producer prices rose more than expected in January, indicating that companies are passing tariff costs to consumers and complicating the path for Federal Reserve rate cuts. Still, markets are pricing in two 25-basis-point rate cuts this year amid speculation that recent market turmoil could prompt the central bank to ease monetary settings.

The DXY rose 0.5% to 98 on Monday, the highest in 5 weeks, as investors moved to safe-haven assets after US and Israel strike on Iran over the weekend resulted in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei. The conflict has significantly disrupted maritime traffic in the oil-rich Gulf. Iran also launched attacks on US assets across neighboring states, including the United Arab Emirates, Bahrain, Kuwait, Qatar, Saudi Arabia, Jordan, Iraq and Syria.

The dollar index remained above 97.7 on Friday and was largely unchanged for the week, supported by stronger-than-expected inflation that reinforced expectations the Federal Reserve will hold interest rates steady. January’s PPI rose 0.5% month-on-month, up from 0.4% in December and exceeding forecasts of 0.3%, signaling persistent price pressures. Jobless claims data showed both initial and continuing claims below expectations, pointing to a stable US labor market and solid worker retention. Money markets are projecting at least two rate cuts this year, with the first one fully priced in July. Investors also watched potential US tariff increases from 10% to 15% for some countries and ongoing US-Iran nuclear talks set to continue next week. The dollar is on track to finish the month 0.9% higher, ending a three-month losing streak.