The U.S. dollar firmed on Thursday following a modest overnight pullback, drawing bid interest as the conflict in the Middle East intensified and oil prices rose, boosting demand for the currency as a global safe-haven. At 04:35 ET (09:35 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, was trading 0.2% higher at 98.897. The index had slipped nearly 0.3% overnight before resuming its climb toward the more-than three-month high recorded earlier in the week.
Market participants pointed to several geopolitical and political developments that appeared to be supporting the greenback. The U.S. Senate voted, largely along party lines, against a motion to halt the air campaign and to require congressional authorization for continued military action. Separately, U.S. forces sank an Iranian warship near Sri Lanka in international waters on Wednesday, a move that raised concerns about the potential for the conflict to expand beyond the Persian Gulf.
Additionally, the White House said Mojtaba Khamenei, the son of Iran’s slain supreme leader, has emerged as a frontrunner to succeed him, a development market participants interpreted as an indicator that Tehran may not quickly yield to external pressure. Those developments collectively encouraged investors to reassess the likelihood of a rapid resolution to the situation in the Middle East.
Domestically, the Federal Reserve’s Beige Book, published on Wednesday, signaled that economic activity across the United States showed signs of weakening in late February. That assessment keeps the spotlight on upcoming labor-market releases: Challenger job cuts data for February were due later in the session, following a large rise in January, and the widely watched monthly nonfarm payrolls report was scheduled for Friday.
Some analysts noted that the mix of geopolitical uncertainty and softer signals on U.S. activity could keep the dollar buoyant within its recent ranges. Given the uncertainty, those strategists suggested the dollar could trend toward the top of its recent range in the near term.
European currencies and growth concerns
In Europe, EUR/USD traded largely flat at 1.1634, lingering near its weakest level since late November as higher energy costs weighed on growth expectations across the region. Data released earlier in the week showed eurozone inflation came in higher than expected in February, and that reading preceded the recent escalation of hostilities in the Middle East. Analysts warned that until the energy price pressures ease, the euro may remain under downward pressure.
GBP/USD slipped 0.1% to 1.3360, with some market participants trimming expectations for monetary easing from the Bank of England after the prospect of higher near-term energy costs rose. Observers also cautioned that sterling could be vulnerable if bond markets came under renewed stress, citing a scenario in which elevated energy prices slow or reverse monetary easing, prompt governments to revive energy subsidies, and place pressure on sovereign bond markets - a dynamic that had weight in 2022 and was referenced by market commentary.
Asian currency moves
In Asia, USD/CNY inched up 0.1% to 6.8985 after Chinese authorities set a 2026 economic growth target of 4.5% to 5%. That target is lower than the roughly 5% objectives set in each of the previous three years and represents the lowest official goal since 1991. Market analysts interpreted the slightly softer target as a signal that policymakers aim for growth stability while showing reluctance to rely heavily on fresh stimulus measures.
Elsewhere, USD/JPY traded 0.1% higher at 157.22, holding near recent five-week highs. AUD/USD fell 0.6% to 0.7030 after Australian data showed the country’s trade surplus narrowed in January.
Outlook
With geopolitical risks elevated and data suggesting some cooling in U.S. activity, traders remain focused on near-term economic releases and potential policy reactions. Labor-market reports due this week are likely to play an important role in shaping expectations for U.S. policy and the dollar’s path, while developments in the Middle East and in energy markets will continue to influence safe-haven flows and growth prospects abroad.