Finance
Dollar Poised for Rally as Escalating Middle East Conflict Spurs Haven Demand
Published by Global Banking & Finance Review®
Posted on March 23, 2026
3 min readLast updated: March 23, 2026
Quick Summary
Escalating Middle East tensions have driven oil prices higher, spurring safe‑haven demand and boosting the U.S. dollar. Markets are scaling back expectations for central bank rate cuts amid renewed inflation risks.
Dollar Rally Looms as Middle East Tensions Drive Demand for Safe Havens
Market Reactions and Currency Movements Amid Middle East Crisis
By Rocky Swift
Dollar Poised for Rebound as Risk Sentiment Damps
TOKYO, March 23 (Reuters) - The dollar was poised for a rebound on Monday as retaliatory threats escalated in the Middle East crisis, damping risk sentiment and boosting demand for haven assets.
The greenback on Friday closed out its first weekly decline since the start of the war in Iran, as the effect of surging oil prices on inflation prompted central banks to turn hawkish. The Australian dollar slid in early trade as equity markets looked to open lower.
Escalating Tensions and Global Economic Impact
Hopes for an off-ramp to hostilities in the Gulf region dimmed over the weekend, with U.S. President Donald Trump threatening to strike Iran's electricity grid and Tehran vowing to hit back at the energy and water systems of its neighbours.
Currency Strategists Weigh In
"The market's going with the idea that those countries and economies that enjoy a positive supply shock from energy are likely to perform better than those that are suffering from a negative supply shock," Rodrigo Catril, a currency strategist at National Australia Bank, said on a podcast.
"So you're seeing the euro and the yen struggling to perform. And again, if this conflict proves long-lasting, you would think that those are the currencies that are likely to suffer a bit more."
Major Currency Movements
The dollar index, which measures the greenback against a basket of currencies, rose 0.03% to 99.53. The euro slid 0.06% to $1.1563.
The yen rose 0.06% to 159.11 per dollar, and sterling weakened 0.06% to $1.3331.
Geopolitical Developments and Central Bank Responses
Retaliatory Threats and Infrastructure Risks
Trump issued his latest threat to Iran on Saturday evening, less than a day after signaling the U.S. might be considering winding down the conflict. Iran pledged retaliatory strikes on infrastructure in nearby countries and that the Strait of Hormuz shipping lane for oil would remain closed.
The prospect of tit-for-tat strikes on civilian infrastructure in the region threatens the livelihoods of millions of people who rely on desalination plants for water. Air raid sirens sounded across Israel from the early hours of Sunday, warning of incoming missiles from Iran.
Central Bank Policy Shifts
Before the U.S.-Israeli war on Iran began in late February, investors had priced in two cuts by the Federal Reserve this year. But they now largely believe one cut is a distant prospect, and other major central banks are turning more hawkish.
The Fed left rates on hold as expected last week, but Chair Jerome Powell said it was too soon to know the scope and duration of the economic impact from the war.
The European Central Bank kept rates on hold on Thursday, but warned of inflation driven by energy prices. The Bank of England also kept rates on hold, while the Bank of Japan left the door open to a hike as soon as April.
Global Markets and Cryptocurrency Movements
Equity and Bond Market Reactions
Equity futures pointed to a plunge in Japan's Nikkei, while 10-year U.S. Treasury yields rose to a near eight-month high of 4.4055%.
Performance of Other Major Currencies
The Australian dollar weakened 0.17% versus the greenback to $0.7011. New Zealand's kiwi edged 0.03% lower to $0.5832.
Cryptocurrency Market Update
In cryptocurrencies, bitcoin fell 0.41% to $67,900.41, and ether declined 0.26% to $2,053.17.
(Reporting by Rocky Swift; Editing by Stephen Coates)
Key Takeaways
- •Middle East conflict and oil supply fears are fueling demand for the dollar as a safe‑haven asset, pushing the dollar index toward multi‑month highs
- •Higher energy prices are prompting markets to reduce expectations for near‑term rate cuts by the Fed and other major central banks
- •Investors remain cautious as geopolitical risks cloud inflation outlooks and central bank policy paths
Frequently Asked Questions about Dollar poised for rally as escalating Middle East conflict spurs haven demand
1Why is the dollar expected to rally amid escalating Middle East tensions?
Escalating Middle East conflict has dampened risk sentiment, boosting demand for safe haven assets like the dollar as investors seek stability.
2How have recent events impacted global currencies?
Currencies such as the euro and the yen are struggling, while the dollar index has risen due to increased risk aversion and higher energy prices.
3What effect has the conflict had on central bank policies?
Central banks are turning more hawkish due to inflation driven by surging oil prices, with rate cuts by the Federal Reserve now seen as unlikely.
4How are markets reacting to the ongoing conflict?
Equity markets are set for declines, Treasury yields have risen, and safe haven assets like the dollar are in demand amid economic uncertainty.
5Which other assets have seen significant moves due to current events?
The Australian and New Zealand dollars weakened, while cryptocurrencies like bitcoin and ether have also declined alongside risk assets.
