The U.S. dollar extended its recent advance on Tuesday as a widening regional conflict spurred demand for safe-haven assets. At 04:25 ET (09:25 GMT), the Dollar Index - which measures the greenback against a basket of six currencies - was trading 0.8% higher at 99.080, its strongest level since January. The index had already surged nearly 1% on Monday, marking its best single-session performance in seven months.
Markets have increasingly bid the dollar as hostilities in the Middle East escalated beyond isolated strikes. Initial confrontations initially involving the U.S. and Iran moved into neighboring countries, and reports said the U.S. embassy in Riyadh was struck by missiles. Data centers operated by Amazon in the United Arab Emirates and Bahrain were also reported hit as retaliation by Iran spread to multiple states in the region.
The U.S. State Department said on Tuesday it had ordered the departure of non-emergency U.S. government personnel and family members from Bahrain, Iraq and Jordan. Meanwhile, Israel said it was targeting Iran and Lebanon at the same time that the Tehran-backed Hezbollah militant group launched missiles and drones against Tel Aviv.
“The dollar was stronger across the board yesterday as investors reacted to the surge in energy prices,” analysts at ING wrote in a note. The firm added: “For FX markets, this continues to look like a tale of the haves and the have-nots when it comes to energy independence. The dollar looks the best currency to take advantage of this energy shock.” ING also said: “DXY looks likely to stay bid in the near term. 99.50/100.00 looks like the target whilst energy prices remain bid.”
The return of robust safe-haven demand follows a period of skepticism about the dollar's protective qualities after it failed to rally during last year’s tariff-driven global market selloff. This latest episode has instead seen the greenback regain appeal as investors seek stability amid geopolitical uncertainty and higher energy costs.
European currencies were particularly affected. EUR/USD traded 0.5% lower at 1.1627, extending steep losses from the prior session with the single currency under pressure due to Europe's dependence on imported energy. ING noted that the euro has been hit by soaring natural gas prices and that many traders holding sizeable long euro positions are unlikely to rush into buying the dip without clear signs of de-escalation.
The Eurozone's flash consumer inflation reading for February, due later in the trading session, will attract attention as energy-driven price pressures mount. The annual headline rate is forecast at 1.7%, unchanged from January, while the core annual rate - excluding food and energy - is expected to be 2.2%. ING suggested that any upside surprise in inflation could give the euro some support by increasing European Central Bank sensitivity to energy-driven price moves.
Other European pairs also reflected strain. GBP/USD fell 0.7% to 1.3314, keeping sterling under pressure, while EUR/CHF dipped 0.2% to 0.9124 after the Swiss National Bank signalled it was more willing to intervene in foreign-exchange markets following the franc's rise to its strongest level versus the euro in over a decade.
In Asia, the yen remained under stress. USD/JPY was largely unchanged at 157.48 after an overnight jump of 0.8% as risk appetite stayed fragile. Market participants said the added uncertainty reduces the likelihood of a near-term Bank of Japan rate increase, and rising energy costs are a particular concern for Japan given its heavy reliance on imports.
Japanese Finance Minister Satsuki Katayama indicated that currency market intervention is still an option to support the yen. ING commented that Japan's status as an energy importer weakens the yen's standing as a safe-haven and that authorities may need to act as the marginal buyer of the currency.
Elsewhere in Asia, USD/CNY traded 0.3% higher at 6.8994, moving further away from the near three-year low reached last week. AUD/USD, a currency sensitive to global risk sentiment, fell 0.4% to 0.7060.
The combined moves highlight a pattern in which the greenback has reasserted its role as a preferred refuge in times of stress, with energy price spikes and visible signs of conflict escalation tipping the balance in favor of the dollar. The immediate outlook for FX markets will likely hinge on developments in the Middle East, energy price trajectories and any central-bank or official-sector responses to currency moves.