U.S. Dollar Climbs to January High as Safe-Haven Demand Strengthens
The U.S. dollar extended its rally on Tuesday as escalating tensions in the Middle East reinforced the currency’s role as a global safe haven.
At 09:38 ET (14:38 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — rose 1% to 99.34. The index reached its highest level since January, building on gains of nearly 1% recorded in the previous session.
Safe-Haven Flows Support the Dollar
The dollar has benefited from rising geopolitical risks as the conflict between the United States and Iran spreads to neighboring countries. Reports indicated missile strikes near the U.S. embassy in Riyadh, as well as attacks affecting infrastructure in the United Arab Emirates and Bahrain.
The U.S. State Department ordered the departure of non-essential government personnel and family members from Bahrain, Iraq and Jordan, signaling heightened regional instability.
Meanwhile, Israel confirmed simultaneous operations targeting Iran and Lebanon following attacks by the Tehran-backed Hezbollah group on Tel Aviv.
Analysts at ING noted that the dollar strengthened broadly as investors reacted to surging energy prices. According to the bank, currencies of energy-importing economies are under pressure, while the U.S. dollar appears well-positioned to benefit from the current energy shock.
ING analysts suggested that the Dollar Index (DXY) could remain supported in the near term, potentially targeting the 99.50–100.00 range as long as oil and gas prices stay elevated.
The renewed demand for the greenback comes after months of skepticism over its safe-haven status, particularly following last year’s tariff-driven market volatility when the dollar failed to rally significantly.
Euro Under Pressure as Energy Prices Rise
The euro weakened against the dollar, with EUR/USD falling 0.9% to 1.1581. The single currency remains vulnerable due to Europe’s heavy reliance on imported energy.
ING analysts pointed out that soaring natural gas prices have increased pressure on the euro. While many expect the spike in energy costs to be temporary, strong long positioning in the currency could limit immediate buying interest unless there is clear evidence of de-escalation in the region.
Attention now turns to the upcoming eurozone flash consumer inflation data for February. The annual inflation rate is expected to remain at 1.7%, matching January’s reading, while core inflation — which excludes food and energy — is forecast at 2.2% year-on-year.
An upside surprise could provide some support to the euro by increasing sensitivity at the European Central Bank to energy-driven price pressures.
Sterling also declined, with GBP/USD down 0.8% to 1.3302. Meanwhile, EUR/CHF slipped after the Swiss National Bank signaled a greater willingness to intervene in currency markets following the Swiss franc’s sharp appreciation.
Asian Currencies Weaken
In Asia, USD/JPY rose 0.3% to 157.89 after a strong overnight gain. The uncertainty surrounding the conflict could encourage the Bank of Japan to maintain a cautious stance, reducing expectations for a near-term rate hike.
Japan’s heavy dependence on imported energy further weakens the yen’s traditional safe-haven appeal. Japanese Finance Minister Satsuki Katayama indicated that currency intervention remains an option to stabilize the yen.
Elsewhere, USD/CNY advanced 0.3% to 6.8996, moving further away from last week’s near three-year low. The Australian dollar, often seen as a risk-sensitive currency, dropped 1.4% against the U.S. dollar.
Overall, the U.S. dollar remains supported by safe-haven flows as investors navigate geopolitical uncertainty and rising energy prices.
