The US dollar pulled back this week after hitting its highest levels in months, as investors started rethinking where interest rates are heading. Rising oil prices and growing tensions in the Middle East are a big part of the shift.
Before the war between the U.S., Israel, and Iran began in late February, markets were expecting the Federal Reserve to cut rates twice this year. Now, even one rate cut looks unlikely.
At the same time, other major currencies are gaining ground against the dollar. The euro, Japanese yen, British pound, Swiss franc, and Australian dollar all moved higher this week. That’s because central banks are hinting they may raise rates to deal with inflation driven by higher energy prices.
The euro rose about 1.4% to around $1.15, the yen gained 1.2%, and the pound climbed more than 1.5%.
A big reason behind all this is oil. Prices have surged sharply—Brent crude is up around 50% since the conflict escalated—mainly بسبب disruption around the Strait of Hormuz, a key route for global energy supplies.
Central banks are reacting carefully. The European Central Bank and the Bank of England kept rates steady but warned inflation could rise. The Bank of Japan hinted at a possible rate hike, while Australia already raised rates again, boosting its currency.
Meanwhile, the Federal Reserve also held rates unchanged. Chair Jerome Powell said it’s still too early to fully understand the economic impact of the war.
The dollar index now sits around 99.3 and is heading for a weekly drop of about 1.1%—its biggest fall since January. Still, some analysts think the dollar could bounce back if uncertainty continues.
