Dollar Rallies as Middle East Conflict Weighs on Yen and Euro, Lifts Safe-Haven Demand

The U.S. dollar strengthened sharply on Tuesday as escalating tensions in the Middle East pressured the Japanese yen and the euro, highlighting the vulnerability of major energy-importing economies to rising oil prices and inflation risks. Investors flocked to the dollar as a safe-haven currency after the U.S. and Israel expanded airstrikes against Iran, with violence spreading into neighboring countries and disrupting energy markets.

The dollar index, which tracks the greenback against a basket of major currencies, climbed to 98.49 following a 0.9% surge in the previous session. The euro stabilized at $1.1695 after dropping more than 1% amid concerns over delayed oil shipments from the region. The Japanese yen recovered slightly to 157.2 per dollar after tumbling 0.8% a day earlier, while the British pound traded flat at $1.3407.

Market analysts noted that Europe and Japan remain heavily dependent on energy imports, making their currencies more sensitive to spikes in oil and gas prices. Qatar’s suspension of liquefied natural gas production and precautionary shutdowns of oil and gas facilities across the Middle East intensified fears of prolonged supply disruptions. In contrast, the United States, as a net energy exporter, appears more insulated from external energy shocks.

Japanese Finance Minister Satsuki Katayama signaled that currency market intervention remains an option to stabilize the yen, adding that authorities are closely monitoring financial markets. Investors are also watching for comments from Bank of Japan Governor Kazuo Ueda for clues on potential interest rate hikes.

Meanwhile, expectations for a Federal Reserve rate cut have shifted, with traders no longer fully pricing in a reduction until September. Fed funds futures still indicate two 25-basis-point cuts by year-end, supporting the dollar’s momentum.

The Swiss National Bank expressed greater willingness to intervene as the Swiss franc surged against the euro. Commodity-linked currencies showed resilience, with the Australian dollar rising to $0.7106 and the New Zealand dollar gaining to $0.5946. In cryptocurrency markets, bitcoin slipped to $68,889.68 and ether declined to $2,031.20 as risk appetite weakened.