The U.S. dollar rose on Thursday, supported by increased demand for safe-haven assets as tensions in the Middle East escalated.
Although the U.S. and Iran agreed to extend their ceasefire, continued attacks on vessels near the strategic Strait of Hormuz, along with strong rhetoric from both Washington and Tehran, dampened investor risk appetite.
By 15:56 ET (19:57 GMT), the U.S. Dollar Index, which measures the greenback against a basket of six major currencies, had gained 0.3% to 98.77.
Trump orders U.S. forces to destroy boats laying mines in the Strait of Hormuz.
Former U.S. President Donald Trump on Thursday said he had instructed the U.S. Navy to “shoot and kill” any vessels attempting to lay mines in the Strait of Hormuz. He added that American mine-clearing operations were already underway and would be intensified threefold. Meanwhile, Axios reported, citing a U.S. official, that Iran had deployed additional mines in the area.
Trump’s remarks followed escalating activity around the Strait of Hormuz, a crucial shipping route that carries about one-fifth of the world’s oil and gas. Its effective closure since the onset of the Middle East conflict has triggered what is being described as the largest oil supply disruption in history.
The U.S. military also announced it had seized an Iran-linked oil tanker, releasing footage that allegedly showed American forces boarding the vessel in the Indian Ocean. At the same time, Iran published a video appearing to show its troops taking control of a cargo ship near the strait.
Earlier, Tehran reportedly attacked three ships on Wednesday and seized two of them. Tensions have been fueled further by the ongoing U.S. naval blockade of Iranian ports and coastline, with U.S. Central Command stating that 33 vessels had been redirected since the blockade began.
Uncertainty over future negotiations between Washington and Tehran continues to weigh on markets. While both sides remain deadlocked over the strait and the blockade, the Wall Street Journal reported that mediators from Pakistan, Turkey, and Egypt are attempting to arrange talks that could take place as early as Friday. Meanwhile, Israel’s N12 News reported that Iran’s Ghalibaf had stepped down from the negotiating team following pressure from the Islamic Revolutionary Guard Corps.
Strong economic data and shifting Fed rate expectations support the dollar.
The U.S. dollar also gained support from stronger-than-expected preliminary PMI data. According to S&P Global, business activity in the U.S. picked up in April after slowing to near stagnation in March following the outbreak of conflict in the Middle East.
José Torres, senior economist at Interactive Brokers, noted that economic conditions improved slightly, with consumer demand, production, employment, and business sentiment remaining resilient despite supply chain disruptions and rising prices that continue to weigh on performance and outlook.
He added that the manufacturing sector stood out, driven by proactive inventory building in response to the Strait of Hormuz closure, as well as policy incentives introduced last year, which helped push S&P Global’s Flash PMI above expectations.
At the same time, expectations that the Federal Reserve may keep interest rates unchanged this year have strengthened. A rebound in oil prices above $100 per barrel has heightened concerns about inflation, raising the possibility that central banks could even consider rate hikes instead of cuts.
Kevin Warsh, nominated by Donald Trump to lead the Fed, told lawmakers on Tuesday that he had made no promises to lower borrowing costs and stressed the importance of the central bank’s independence, despite Trump’s repeated calls for aggressive rate cuts to support economic growth.
Meanwhile, a Reuters poll indicated that investors expect the Fed to hold off on any rate cuts for at least six months.
Eurozone output hits a 17-month low, while South Korea records robust GDP growth.
Eurozone business activity fell to a 17-month low, pushing the euro down 0.2% to $1.1687 after S&P Global data showed the private sector slipping back into contraction in April, ending 15 months of expansion. According to Chris Williamson, the region is facing mounting economic strain from the Middle East conflict, which is both dragging growth and fueling inflation, while supply shortages risk worsening the outlook further.
Meanwhile, the British pound dropped 0.3% to $1.3467, and the Japanese yen weakened with USD/JPY edging up to 159.68. The South Korean won also declined, with USD/KRW rising 0.4% to 1,483.48, despite strong data showing South Korea’s economy recorded its fastest growth in nearly six years in Q1 2026, driven largely by a surge in AI-related chip exports.
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