Dollar index rises above 100 as Iran conflict fuels safe haven demand
The US dollar index climbed above the 100 mark on Wednesday, gaining about 5 percent from its late January low, as escalating tensions in the Middle East and a more restrictive Federal Reserve stance drove investors toward the dollar as a safe haven.
The move marks a sharp reversal for a currency that had fallen roughly 9 percent earlier in 2025 and started the year near multi-year lows. Since US and Israeli strikes on Iran on February 28, the dollar has outperformed traditional safe haven assets, including gold, the Swiss franc, and the Japanese yen, reinforcing its role during periods of global uncertainty.
Rising oil prices have been a key factor behind the surge. The conflict between the United States and Iran, now in its third week, has disrupted around 20 percent of global oil and gas flows through the Strait of Hormuz. Brent crude has climbed above $100 per barrel as supply concerns intensify. Iran has warned it could target energy infrastructure in Saudi Arabia, Qatar, and the United Arab Emirates, while Qatar’s Ras Laffan liquefied natural gas facility remains offline following a reported drone strike.
The energy shock is reshaping global inflation expectations. Analysts note that oil prices are driving movements in currencies and interest rates, with the stronger dollar reflecting broader market reactions to supply disruptions. The United States’ position as a net energy exporter has also helped shield its economy from the full impact of rising oil prices, increasing the appeal of dollar-denominated assets.
Monetary policy has reinforced this trend. The Federal Reserve kept its benchmark interest rate unchanged at 3.5 percent to 3.75 percent, while raising its 2026 inflation forecast to 2.7 percent. Chair Jerome Powell signaled caution, stating that rate cuts would depend on further progress in controlling inflation. Although projections still include a possible rate reduction this year, more policymakers now expect rates to remain unchanged into 2026.
Equity markets reacted negatively to the Fed’s stance. The S&P 500 dropped 1.4 percent, while the Dow Jones Industrial Average fell 1.6 percent, closing at its lowest level of the year.
A stronger dollar is creating pressure on emerging markets. The shift reverses earlier gains seen in 2025, as higher energy prices and tighter US monetary policy reduce global liquidity. Countries with dollar-denominated debt face rising costs, and central banks may be forced to maintain higher interest rates to stabilize their currencies. Analysts warn that if the dollar index continues to rise, it could create sustained headwinds for emerging market currencies.
The duration of the Middle East conflict remains a critical factor influencing the direction of the dollar, oil prices, and global financial markets.
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