Dollar likely to end the week positively due to its safe-haven status.

Dollar’s Weekly Rise Amid Geopolitical Tensions

The dollar is on track for its largest weekly gain in over a month as of Friday. This surge comes in light of the ongoing conflicts in the Middle East, which have heightened concerns regarding the global economy and increased demand for traditional safe-haven assets.

The dollar index, which measures the US currency against six others, has shown a rise of about 0.5% this week. The persistent strife between Israel and Iran is contributing to market anxiety, particularly regarding the potential for US involvement in the region.

For about a week, these two nations have engaged in aerial confrontations, with Israel aiming to thwart Iran’s nuclear pursuits while also destabilizing its government. Reports indicate that President Trump is expected to make a decision within the next two weeks regarding possible military support for Israel.

Moreover, rising oil prices have introduced another layer of inflation worries for central banks in the area.

Charu Chanana, chief investment strategist at SAXO, pointed out that “increased oil prices lead to inflation uncertainty, especially in times of slowing growth.” She noted how this makes central banks’ roles increasingly complicated. “Do they ease policies to foster growth, or tighten to control inflation? Right now, it seems they are focusing more on growth, considering that overall profits might not hold up,” she added.

In early Asian trading, the euro saw a slight increase, gaining 0.16% to $1.151, while the yen depreciated about 0.17% against the dollar, settling at 145.23.

The yen’s performance was partly influenced by recent inflation figures, which have raised expectations for subsequent interest rate hikes. Minutes from the Bank of Japan’s policy meeting this week revealed that officials concurred on the importance of continuing gradual rate increases.

The Swiss Franc, meanwhile, remained steady at 0.816 per dollar. However, it is on course for its largest weekly decline since mid-April, following a cut in borrowing rates by the Swiss central bank. Currently, the country’s interest rates stand at 0%.

Currencies that typically respond to market sentiment, such as the Australian and New Zealand dollars, were stable against the dollar. In contrast, the British pound saw minor fluctuations, adjusting slightly to $1.34.

Earlier in the week, the Federal Reserve maintained its projection for two interest rate cuts this year, but Chairman Jerome Powell cautioned against assuming this outlook would be definitive. Analysts interpret the Fed’s stance as a “hawkish tilt,” further propelling the dollar’s strength this week.

On a different note, the Norges Bank surprised markets with an unexpected rate cut of 25 basis points, resulting in a more than 1% slip in the Norwegian Krone against the dollar.

As geopolitical tensions remain the focal point for markets this week, concerns regarding tariffs, costs, and corporate margins continue to linger. These issues have significantly impacted the dollar, which has fallen nearly 9% this year.

There is also chatter about President Trump’s tariff deadline in July, with sources suggesting that European authorities are growing resigned to a 10% tariff rate, which could serve as a foundation for any trade agreements between the US and the EU.