Summary

The U.S. dollar has firmed up on Monday as investors seek safety, despite restrained moves suggesting markets are waiting for Iran’s response to U.S. attacks on its nuclear sites. The major moves were in the oil market, with crude prices hitting a five-month high due to escalating conflict in the Middle East.

Market Reaction to U.S. Attacks on Iran

The global stock market has slipped after the U.S. attacked Iran’s nuclear sites and President Donald Trump raised the idea of regime change in the Islamic republic. The restrained moves suggest markets are waiting for Iran’s response, with more worries about the positive inflationary impact of the conflict than the negative economic impact.

In currency markets, the euro was 0.33% lower at $1.1484, while the Australian dollar hit a one-month low and was last 0.67% weaker at $0.6408. This left the dollar index, which measures the U.S. currency against six other units, 0.12% higher at 99.037. Sterling was 0.26% lower at $1.3416, while the New Zealand dollar sank 0.68% to $0.5926.

The dollar was up 0.52% against the yen at 146.81 after touching a one-month high earlier in the session. The U.S. currency cast a shadow on other Asian currencies, including the rupiah, ringgit and the Philippine peso. Bank of America strategists said the dollar-yen can reprice higher if oil prices remain elevated, noting Japan imports almost all of its petroleum, more than 90% of which comes from the Middle East.

Impact of Conflict on Global Markets

Iran’s parliament approved a move to close the Strait of Hormuz, nearly a quarter of global oil shipments pass through the narrow waters that Iran shares with Oman and the United Arab Emirates. This has led to concerns about the potential disruption to global oil supply or trade. Marketers appear to be treating the U.S. strikes on Iran as a contained event for now, rather than the start of a broader war.

While the dollar has reprised its role as a safe haven due to the rapid spike in geopolitical risks, the relatively muted moves suggest investors remain wary of going all in on the greenback. The U.S. currency has dropped 8.6% this year against its major rivals as economic uncertainty from President Donald Trump’s tariffs and concern over their impact on U.S. growth led investors to scurry for alternatives.

Impact on Cryptocurrencies

In cryptocurrencies, bitcoin was up 1.75% in early trade after dropping about 4% on Sunday, while ether rose 2.3% on Monday after sliding 9% in the previous session.

Investor Sentiment and Outlook

The currency markets will be at the mercy of comments and actions from the Iranian, Israeli and U.S. governments. The risks are clearly skewed to further upside in the safe haven currencies if the parties escalate the conflict. Carol Kong, currency strategist at Commonwealth Bank of Australia, said that investors are in wait-and-see mode on how Iran responds.

The dollar was up 0.52% against the yen at 146.81 after touching a one-month high earlier in the session. The U.S. currency cast a shadow on other Asian currencies, including the rupiah, ringgit and the Philippine peso. Bank of America strategists said the dollar-yen can reprice higher if oil prices remain elevated, noting Japan imports almost all of its petroleum, more than 90% of which comes from the Middle East.

Conclusion

The global markets have been impacted by the escalating conflict in the Middle East due to U.S. attacks on Iran’s nuclear sites and President Donald Trump’s idea of regime change. The dollar has firmed up as investors seek safety, but restrained moves suggest markets are waiting for Iran’s response. The relatively muted moves suggest investors remain wary of going all in on the greenback.

The conflict has led to concerns about the potential disruption to global oil supply or trade. Marketers appear to be treating the U.S. strikes on Iran as a contained event for now, rather than the start of a broader war. The currency markets will continue to be at the mercy of comments and actions from the Iranian, Israeli and U.S. governments.