The Dollar was on track for its first weekly gain in a month on Thursday, supported by rising geopolitical tensions in the Middle East and stalled peace efforts, which pushed oil prices back above $100 a barrel and weighed on investor sentiment.
Tensions escalated after Tehran seized two vessels in the Strait of Hormuz on Wednesday, following US President Donald Trump’s decision to extend a ceasefire with Iran indefinitely, despite no clear progress toward renewed negotiations.
Disagreements persist between the two sides over ceasefire terms, blockades, nuclear concerns, and control of the strait. As a result, the key shipping route remains effectively closed, triggering an energy shock that is impacting economies worldwide, Reuters reports.
The Euro held steady at $1.17 after earlier slipping to its lowest level since 13th April, and is on course for a 0.5% weekly loss, its first decline in four weeks. Sterling edged down 0.1% to $1.3484, largely brushing aside data indicating that the US-Israeli conflict with Iran has already begun to curb UK consumer spending on fuel.
Meanwhile, the Japanese Yen weakened slightly to 159.56, hovering close to the 160 mark that many investors see as a potential trigger for official intervention. The Bank of Japan is widely expected to leave interest rates unchanged at its upcoming meeting, although it has signalled that a rate increase could be on the table as early as June.
The dollar index, which measures the US currency against a basket of six peers, edged up slightly to 98.60 and is on track for a 0.4% weekly gain, its first increase in a month.
The greenback had previously strengthened in March as the conflict began, benefiting from safe-haven demand. However, optimism earlier this month around a potential ceasefire and peace agreement led investors to shift back toward riskier currencies, erasing much of those earlier gains.
The conflict in the Middle East, now approaching two months, has driven fuel prices sharply higher, weakened consumer confidence, and effectively eliminated market expectations for interest rate cuts this year.
Market expectations indicate that traders assign roughly a 25% probability to a Federal Reserve rate cut this year, while anticipating two rate increases from the European Central Bank in 2026.
Attention will turn to US weekly initial jobless claims and PMI data due later on Thursday, as investors look for signs of whether rising energy costs are beginning to affect the wider economy.