The US Dollar held steady on Monday, maintaining its largest weekly gain since 2022, supported by the expectation of persistent high US interest rates and escalating tensions in the Middle East.

Last week, the Dollar surged by 1.6% against a basket of six major currencies following a minor upside surprise in US inflation, which led to doubts regarding expectations for US rate cuts. Meanwhile, European policymakers indicated the possibility of a rate reduction within a few months, Reuters reports.

The initial currency movements on Monday appeared to be driven primarily by the diminishing expectations for Federal Reserve rate cuts rather than by the weekend attack on Israel by Iran. Despite the geopolitical tensions, the broader market reaction has been relatively subdued.

"It is too early to judge. It was really a symbolic attack over the weekend ..., never really designed to inflict much damage - it's now over to what Israel's response will be," said Jason Wong, senior market strategist at BNZ in Wellington.

There was little change to the Dollar index, measuring the currency against six peers, at the time of writing, which stood at 105.92, just under the five and a half-month high on Friday of 106.11

"If you want a safe-haven currency right now, the Dollar is the best place to go," according to Chris Turner, global head of markets at ING, noting ample liquidity, elevated US deposit rates and US energy independence.

Whereas in Japan, the Yen dropped to a 34-year low at 153.93 to the Dollar, the Reuters report adds.

The Yen's decline against the Dollar has reignited speculation about potential currency intervention. Japanese Finance Minister Shunichi Suzuki stated that he is closely monitoring currency movements and emphasized that Tokyo is "fully prepared" to take action if necessary.

"I think if Dollar-Yen got up to 155, Tokyo would intervene," ING's Turner said.

"If there was some greater escalation in the Middle East the Yen could benefit at the margin because it's the largest short position in the market."