The dollar climbed toward multi-month highs on Friday as escalating tensions in the Middle East and fading hopes for de-escalation pushed investors toward safe-haven assets.
Markets remained on edge following a turbulent week. U.S. President Donald Trump extended a pause on strikes against Iran’s energy facilities into April, even as Washington and Tehran offered sharply conflicting accounts of diplomatic progress. Adding to the unease, the Wall Street Journal reported that the Pentagon is considering deploying up to 10,000 additional ground troops to the region—a move that further dimmed prospects for a swift resolution to the conflict.
The uncertainty bolstered the U.S. dollar, with investors flocking to its safety while also increasing bets that the Federal Reserve may raise interest rates by year-end due to sustained inflationary pressure from elevated energy prices.
The Japanese yen hovered near 160 per dollar, trading at 159.61, while the euro edged down 0.03 percent to $1.1525. Sterling slipped 0.05 percent to $1.3325.
“It doesn’t look like the conflict will end anytime soon,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “The dollar is king while this conflict lasts.” She added that if the war proves prolonged, rising oil prices would likely push the dollar even higher, particularly against net energy importers like Japan and the eurozone.
Risk-sensitive currencies took a hit, with the Australian dollar falling to a two-month low of $0.68722. The New Zealand dollar also remained near its weakest level since January, down 0.15 percent at $0.5754.
Against a basket of major currencies, the dollar edged up to 99.93 and was on track for a 2.3 percent gain in March—its strongest monthly performance since July of the previous year.
According to the CME FedWatch tool, investors now see a 46 percent chance of a quarter-point rate hike by the Federal Reserve by December, a sharp turnaround from earlier expectations of more than half a percentage point in rate cuts before the conflict escalated.
Central banks in the UK and Europe are also expected to tighten policy, with shifting rate expectations weighing on bonds and pushing yields higher.
“A more prolonged disruption to energy supplies would deliver a larger hit to activity that would meet most definitions of a global recession and prompt a broader monetary tightening cycle,” analysts at Capital Economics said in a note.
U.S. Treasury yields steadied on Friday after a sharp rise overnight. The two-year yield stood at 3.9776 percent, while the benchmark 10-year yield dipped slightly to 4.4097 percent.
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