The US dollar rose sharply on Friday as investors rushed to safe-haven assets following Israel’s large-scale strikes against Iran, which triggered Iranian drone retaliation. This surge came amid heightened geopolitical tensions in the Middle East.
Israel targeted multiple military sites in Iran, prompting Iran to respond with a drone attack. Meanwhile, US and Iranian officials are scheduled to hold a sixth round of talks in Oman on Sunday concerning Iran’s uranium enrichment program. Israel’s UN ambassador emphasized that the strikes were an independent decision by the Israeli government.
Initially, the Swiss franc and Japanese yen gained ground, but the dollar soon reclaimed its position as the preferred safe-haven currency. Against a basket of major currencies, the dollar climbed nearly 0.6%, with the euro, British pound, and Australian dollar all falling.
City Index strategist Fiona Cincotta said the dollar is returning to its traditional safe-haven role, which had not been seen for months. However, she noted that the boost might be temporary, especially with the Federal Reserve’s interest rate decision scheduled for next week.
The euro slipped 0.4% to $1.1538, breaking a four-day rally but remaining near a four-year high. The dollar also gained 0.2% against the yen and Swiss franc.
Investors bought US Treasury bonds, pushing the 10-year yield down to a one-month low of 4.31%. Gold prices surged 1.7% to $1,944 an ounce, reaching their highest level since early May.
Despite Friday’s gains, the dollar index remains near its lowest point since March 2022 and is set for a nearly 1% weekly loss, its largest drop in over three weeks. This decline comes amid ongoing concerns about global trade and inflation, with recent US-China trade talks offering little clarity.
Currency strategist Christopher Wong of OCBC said geopolitical tensions might temporarily disrupt the dollar’s downward trend and weigh on riskier assets heading into the weekend.
Two recent inflation reports showed contained price pressures, raising expectations for more aggressive US Federal Reserve rate cuts. However, rising tariffs and the recent spike in crude oil prices—up more than $5 per barrel due to Middle East tensions—could increase inflation risks.
Investors are also awaiting the University of Michigan’s preliminary consumer sentiment survey later Friday. Central bank decisions from the Federal Reserve, Bank of Japan, and Bank of England next week are expected to provide further guidance on interest rates.
The risk-off sentiment also impacted cryptocurrencies, with Bitcoin falling 1.5% to $26,336 and Ether dropping over 4.7% to $1,516.
