The U.S. dollar climbed on Friday, putting it on track for its strongest monthly performance since July 2025, as investors turned to the currency for safety amid ongoing uncertainty surrounding the Iran conflict. The U.S. Dollar Index rose 0.3% to 100.18 and is up 2.6% so far in March, marking its biggest monthly gain in months.
Demand for the dollar has been supported not only by its safe-haven appeal but also by expectations that interest rates may stay higher for longer, driven by rising energy prices and inflation pressures. Markets have largely abandoned expectations of rate cuts from the Federal Reserve, with some even pricing in potential rate hikes. At the same time, investors have been selling bonds, pushing U.S. Treasury yields higher, with the 10-year yield reaching its highest level since July.
Analysts suggest the dollar’s strength is also rooted in fundamentals, particularly the U.S.’s lower reliance on imported oil compared to other regions, making it more resilient to energy price shocks. In contrast, Europe and parts of Asia remain more vulnerable to disruptions caused by the conflict.
Meanwhile, escalating tensions in the Middle East weighed on risk assets, while oil prices surged above $110 per barrel. Despite extending a deadline for Iran to reopen the Strait of Hormuz, U.S. President Donald Trump’s move did little to calm markets, especially as reports emerged of Israeli strikes on Iranian infrastructure, which Tehran said contradicted ongoing diplomatic timelines.
In currency markets, the euro and British pound weakened against the dollar, while the Japanese yen fell to around 160 per dollar, nearing levels that could prompt government intervention. Analysts expect the conflict may be short-lived, but warn that prolonged tensions could keep energy prices elevated and continue to pressure global markets, particularly currencies of energy-importing economies.
Sources: Anuron Mitra
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