Dollar Hits Highest Level Since January, Safe Haven Status Firmer
The US dollar strengthened again on Tuesday as the conflict in the Middle East escalated, reinforcing the greenback's position as a global safe haven asset as markets entered risk-off mode.
The Dollar Index (DXY), which measures the dollar's strength against a basket of six major currencies, rose about 0.5% to 99.04, its highest level since January. This strengthening extended the rally after the index also recorded a nearly 1% gain on Monday.
The dollar continued to benefit from safe haven demand as the conflict, which initially primarily involved the US and Iran, began to spread to neighboring countries. Geopolitical uncertainty prompted investors to reduce risk exposure and increase positions in assets considered the most liquid and safe, including the dollar.
Reports indicated that the US embassy in Riyadh was targeted in a missile attack, while Amazon data centers in the UAE and Bahrain were also reportedly hit as Iran launched retaliatory attacks in several Middle Eastern countries. At the same time, the US State Department ordered the repatriation of non-emergency government personnel and family members from Bahrain, Iraq, and Jordan.
Regionally, Israel announced operations targeting Iran and Lebanon simultaneously, after the Tehran-backed Hezbollah group launched an attack on Tel Aviv using missiles and drones. This series of developments has thickened risk premiums and restrained global market risk appetite.
According to Thierry Wizman, Global FX & Rates Strategist at Macquarie, the factor causing the most market panic right now is the potential for an inflationary war. He believes a new spike in inflation—like the one that occurred in 2022–2023 following the Russia–Ukraine war—could destabilize global growth, especially since many growth-driving technologies (including those related to AI) rely heavily on cheap energy and electricity. If energy becomes scarce, electricity restrictions could hit sectors deemed “non-essential” first.
Source: Newsmaker.id
