US Dollar rises above 99.50 as Middle East tensions fuel safe-haven demand
- US Dollar Index climbs to multi-month highs around 99.65 in Monday’s Asian session.
- Traders pile into the safe-haven currency amid rising geopolitical uncertainty in the Middle East.
- The US NFP came in weaker than expected, falling by 92,000 in February.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.65 during the Asian trading hours on Monday. The DXY climbs to the highest level since late November 2025 amid heightened geopolitical tensions in the Middle East.
US President Donald Trump said that he doesn’t want to negotiate an end to the war with Iran while demanding that Tehran capitulate as US and Israeli airstrikes continue. Meanwhile, Israel's Defense Minister Israel Katz on Saturday warned the Lebanese government to disarm Hezbollah or "pay a very heavy price."
The US Dollar strengthened against its rivals as an escalating war in the Middle East boosted safe-haven demand. "The dollar has been seen as the ultimate safe-haven due to its liquidity, while also being buoyed by the rise in oil prices,” said Matthew Ryan, head of market strategy at financial services firm Ebury. “We favor continued upside in the dollar so long as the war drags on without an immediate end in sight.”
On the other hand, the weaker-than-expected US February employment data could weigh on the DXY. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that the Nonfarm Payrolls (NFP) in the US declined by 92,000 in February. This figure followed the 126,000 (revised from 130,000) increase seen in January and missed the market expectation for an increase of 59,000 by a wide margin.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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