The U.S. dollar is expected to find near-term support after the latest round of U.S. and Israeli military strikes against Iran, though market responses across currencies may be uneven, analysts say.
Barclays' Head of FX Research, Themistoklis Fiotakis, highlighted two primary channels that are likely to benefit the dollar: rising energy prices and heightened risk aversion. Fiotakis noted that energy moves have historically translated into currency effects - roughly 0.5-1% for every 10% rise in oil - and that the recent escalation adds to these dollar tailwinds.
Officials in Washington and Tel Aviv have carried out a new series of strikes that market participants describe as larger in scope than earlier operations. Reports indicate significant losses among Iranian leadership, including Supreme Leader Ali Khamenei. In a video message, President Donald Trump set out broad war aims and indicated the campaign could continue for days or weeks.
HSBC strategist David May said the immediate market reaction is likely to favor the greenback. "The USD is likely to have an upper hand in the near-term," May said, while adding that the present situation may not mirror how markets behaved during the June 2025 conflict with Iran. At that time, he noted, the dollar's initial safe-haven bounce quickly faded as domestic U.S. policy uncertainty weighed on sentiment.
May argued that the earlier episode should not be read as evidence of a structural loss of the dollar's defensive appeal. "This was not the case, in our view," he said, and emphasized that geopolitical shocks often produce mixed signals in foreign-exchange markets.
Both Barclays and HSBC warned that how long any dollar strength lasts will depend on the broader macroeconomic backdrop and the direction of risk sentiment. HSBC cautioned that geopolitical events can send confusing signals to currencies beyond the U.S. dollar and that the medium-term picture remains uncertain.
In sum, market strategists see immediate conditions - notably higher energy prices and increased risk aversion - as favorable for the dollar, but they stress that durability will be contingent on evolving macro fundamentals and policy clarity.