The U. S. dollar is strengthening as investors seek safe-haven assets amid escalating conflict in the Middle East. Following U. S. and Israeli strikes in Iran, and retaliatory actions by Iran, concerns about a prolonged regional conflict are roiling global markets. This has triggered a flight to safety, benefiting the dollar, gold, and U. S. Treasuries.
The dollar index, which measures the dollar's value against key trading partners, rose 0.74% to 98.37, hitting its highest level since January 23. The euro has come under pressure, while the Swiss franc, another safe-haven currency, hit an 11-year high against the euro. Analysts at Barclays estimate the dollar could strengthen 0.5%-1% for every 10% increase in oil prices, as the U. S. is relatively insulated as a net crude exporter.
The conflict is disrupting shipping in the Strait of Hormuz, a crucial chokepoint for global oil flows. This has led to a surge in oil prices, further fueling demand for the dollar. "The reaction at the center of everything is that of the oil market," said Thu Lan Nguyen, head of forex and commodity research at Commerzbank.
The death of Iran's Supreme Leader Ayatollah Ali Khamenei has added another layer of uncertainty, potentially leading to regime change and instability. While the long-term implications remain unclear, the immediate impact is a heightened sense of risk, driving investors toward the perceived safety of the U. S. dollar.
