Dollar Rises on Geopolitical Tensions and Inflation Fears

The U.S. dollar is on track for its largest weekly gain in over a month, driven by escalating Middle East tensions and renewed inflation concerns. The dollar index, which measures the greenback against six major currencies, is set to rise 0.5% this week as investors seek safe havens amid the ongoing conflict between Israel and Iran.

With Tel Aviv targeting Tehran’s nuclear facilities, fears of U.S. involvement continue to grow. President Donald Trump is expected to decide in the coming weeks whether to support Israel militarily. The geopolitical instability has sparked a surge in oil prices, adding uncertainty to global inflation outlooks and complicating central bank strategies.

“Higher oil prices are creating inflation uncertainty just as global growth slows,” said Saxo’s chief investment strategist Charu Chanana. “Central banks must now choose between supporting growth or containing inflation.”

Despite tensions, the euro edged up 0.16% to $1.151, while the dollar slipped 0.17% against the yen to 145.23. The yen gained strength after Japan reported hotter-than-expected inflation, supporting further rate hike expectations from the Bank of Japan.

Meanwhile, the Swiss franc remained flat at 0.816 but is set for its steepest weekly decline since April after Switzerland’s central bank slashed rates to 0%. The Norwegian krone also weakened by over 1% following an unexpected rate cut by Norges Bank.

Risk-sensitive currencies like the Australian and New Zealand dollars stayed stable. The British pound held firm at $1.34.

Although the Fed maintained its projection of two rate cuts this year, Chair Jerome Powell’s cautious tone was perceived as hawkish, reinforcing dollar strength. In contrast, U.S. trade tensions and looming tariffs, particularly a potential 10% rate on EU imports, continue to weigh on global market sentiment.