Dollar Begins with New Escalation of Attacks in the Middle East

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The dollar has launched a new series of attacks in the Middle East. With few local indicators available, investors are turning to interest rate decisions from major global economies, including announcements from the Bank of Japan (BoJ), the European Central Bank (ECB), and the Bank of England (BoE). Before the latest attacks, the market anticipated a stabilization of the situation in the Middle East. In February, investors briefly shifted toward fixed income, but the escalating conflict triggered a reevaluation of risk and increased demand for safe investments. President Trump’s initial plan to end the war has been disrupted by this escalation. The dollar regained its safe-haven appeal. As tensions in the Middle East showed signs of easing, the dollar initially declined, and oil prices stabilized. On March 17, 2026, West Texas Intermediate (WTI) crude oil fell 5.28% to $93.50 per barrel, while Brent crude decreased 2.84% to $100.21 per barrel. Investor optimism was fueled by expectations of larger releases from strategic oil reserves and smoother passage through the Strait of Hormuz. However, continued strikes in the region reversed this trend.

These conflicts are prompting significant adjustments to expectations for inflation and central bank policies, particularly regarding Federal Reserve rate cuts, now anticipated in September or October. This shift is primarily driven by rising oil prices and concerns about a potential supply shock from the intensified conflict. Consequently, the market is revising its inflation outlook, and rising U.S. Treasury yields are bolstering the dollar’s value.

High oil prices and a delayed Federal Reserve pivot are keeping Treasury yields elevated, diminishing earlier hopes for easier monetary policy. The emerging consensus suggests higher inflation and a longer wait for rate cuts. Since late February, global tensions have contributed to a roughly 3% increase in the U.S. dollar index. Threats related to Iran in the Strait of Hormuz had pushed oil prices to $120 per barrel. To ease supply worries, the International Energy Agency released 400 million barrels. Simultaneously, Europe faces inflation and growth concerns, fueling discussions about interest rates at the European Central Bank. Climbing U.S. Treasury yields reflect investor reactions to rising inflation and economic uncertainty. Recent geopolitical developments include Mojtaba Khamenei’s appointment as Iran’s new Supreme Leader. In Brazil, the Selic rate was reduced by 0.25 percentage points to 14.75% per year, while the Federal Reserve in the U.S. maintained rates between 3.50% and 3.75% per year (G1).

Middle East Conflict Intensifies, Fueling U.S. Dollar Demand and Global Monetary Uncertainties

President Trump now anticipates that the Middle East war might conclude sooner than initially expected. The dollar surged over 5% the week after the February 28th strikes. Although the U.S. and Israel have achieved air superiority over western Iran and Tehran, the conflict is ongoing. With Iran promising retaliation and tensions remaining high, investors are increasingly favoring the dollar as a safe haven, indicating a potentially deepening conflict rather than a resolution. In summary, the dollar’s trajectory and investor sentiment are heavily dependent on unfolding geopolitical events and the anticipated responses from major central banks.

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