Dollar Emerges as Top Safe-Haven Asset Amid Middle East Conflict
The U.S. dollar is on track for its strongest monthly performance since July, standing out as the leading safe-haven asset as the Middle East conflict drives oil prices higher, weakens global markets, and raises concerns about a potential global recession.
War Impact Keeps Dollar Strong Despite Oil Volatility
A Wall Street Journal report indicating that President Donald Trump may end military action against Iran without reopening the Strait of Hormuz briefly pushed oil prices lower in Asian trading. However, the dollar remained largely unaffected, maintaining its upward momentum.
The currency strengthened significantly against Asian peers, rising 1% against the South Korean won to 1,534—levels last seen during the global financial crisis in 2009 and the Asian financial crisis of the late 1990s.
Major Currencies Under Pressure
The euro remained below $1.15, while the British pound, Australian dollar, and New Zealand dollar hovered near multi-month lows.
The Japanese yen avoided deeper losses due to renewed warnings from Tokyo about potential currency intervention. Still, it remained weak, trading near 159.52 per dollar after hitting its lowest level since July 2024 earlier in the week.
Drivers Behind Dollar Strength
The dollar’s strength has been supported by several factors, including the United States’ position as a major energy exporter, rising U.S. Treasury yields, and increased demand for liquidity during heightened geopolitical uncertainty.
Investors have shifted toward cash and dollar-denominated assets, while Asian currencies have faced some of the steepest declines.
Market analysts note that without clear signs of de-escalation in the Iran conflict, the dollar is unlikely to give up its recent gains in the near term.
Dollar Index Hits Multi-Month High
The U.S. dollar index climbed to its highest level since May, reaching 100.61 before settling near 100.47. The index has gained approximately 2.9% in March, marking its sharpest monthly increase in months.
Other Safe-Haven Assets Weaken
Unlike typical market conditions, traditional safe-haven assets such as bonds, gold, the Japanese yen, and the Swiss franc have all declined during March.
Rising oil prices—approaching $100 per barrel—have triggered inflation concerns, putting pressure on bond markets and reducing the appeal of gold. Meanwhile, energy-related economic pressures have weighed on currencies like the yen and franc.
Commodity Currencies Face Sustained Losses
The Australian and New Zealand dollars have experienced continued declines. The Australian dollar fell to a two-month low of $0.6834, down 3.7% for the month, while the New Zealand dollar is nearing a break below the 57-cent level after six consecutive losing sessions.
Sterling remained relatively stable but still hovered just above $1.32.
Risks to Dollar Momentum
Potential risks to the dollar’s strength include upcoming U.S. labor market data and possible shifts in the typical relationship between currency and equity markets.
Strategists warn that if the conflict becomes more prolonged and unpredictable, traditional market correlations could shift, introducing new volatility.
Inflation Data in Focus
Investors are also closely watching inflation data in Europe, expected later in the session, which could rise above the European Central Bank’s 2% target and further influence global currency markets.
