The US dollar climbs against most major global currencies as renewed conflict in the Middle East increases concerns about inflation and future interest rate hikes. Investors shifted toward the dollar as geopolitical uncertainty continued to grow.
The latest market movement followed heavy missile and drone attacks exchanged between US and Iranian forces over the weekend. The escalation has raised fears about global energy supplies and increased demand for safe-haven assets.
The dollar climbs against the Japanese yen, rising 0.2% to 162.075 yen during trading. Meanwhile, the euro slipped 0.1% to $1.1397, while the British pound weakened 0.2% to $1.3374.
Commodity-linked currencies also came under pressure. The Australian dollar declined 0.3% to $0.6928, while the New Zealand dollar eased 0.1% to $0.5757.
Market sentiment remained cautious after Iran said it had again closed the Strait of Hormuz following attacks on US facilities in Gulf states. The strategic waterway is one of the world’s busiest shipping routes and plays a vital role in global oil trade.
Oil prices responded sharply to the latest developments. Brent crude futures rose 4.1% in Asian trading to reach $79.11 per barrel. Higher energy prices have increased concerns that inflation could remain elevated for longer.
Analysts believe rising oil prices may influence central banks to maintain tighter monetary policies. According to Tony Sycamore, a market analyst at IG in Sydney, crude oil has become the main driver behind the dollar’s recent strength.
He noted that higher energy costs could push inflation upward and increase the likelihood of interest rate hikes being introduced sooner than expected.
Market expectations also shifted after the recent conflict. Data from CME Group’s FedWatch Tool showed that traders now see a 50.9% chance of two or more US interest rate hikes before the Federal Reserve’s December meeting. The probability stood at 47.6% only a few days earlier.
The US Dollar Index, which measures the greenback against six major currencies, also moved higher. It gained 0.1% to 101.13 after reaching its strongest level since July 8.
Thomas Mathews, Head of Markets for Asia Pacific at Capital Economics, said the dollar had already strengthened significantly before the latest conflict. He suggested further gains may be more limited if tensions continue to rise.
Investors are now closely watching key US economic data due later this week. Consumer Price Index (CPI) figures will be released on Tuesday, followed by Producer Price Index (PPI) data the next day. Markets will also monitor testimony from Federal Reserve Chair Kevin Warsh for signals about future monetary policy.
Meanwhile, the Bank of Japan is reportedly considering raising its economic growth forecast for fiscal 2026 while remaining focused on inflation risks linked to a weaker yen and stronger demand for artificial intelligence technologies.
Cryptocurrency markets moved lower during the session. Bitcoin fell 2.1% to $62,790.02, while Ether declined 2.3% to $1,779.01.
As geopolitical uncertainty continues, the dollar climbs on expectations that inflation risks and higher interest rates could remain a key focus for global financial markets.
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