The US dollar rose on Friday as investors flocked to the currency and other safe havens including US Treasury bonds and gold after Israel launched a major attack on Iran, prompting Tehran to retaliate.

Israel said it targeted multiple military targets in Iran, and Iran launched a barrage of drones in response.

"The geopolitical escalation adds another layer of uncertainty to an already fragile sentiment," said Charu Chanana, chief investment strategist at Saxo.

"The key question now is whether this marks a brief flare-up or the beginning of a broader regional escalation. If tensions escalate, especially with any threat to oil supply routes, risk aversion could persist, further pressuring crude and haven assets."

US and Iranian officials are due to hold a sixth round of talks in Oman on Sunday on Tehran's uranium enrichment program. Israel's ambassador to the United Nations said the government's determination to strike Iranian targets was an independent decision.

An index that measures the U.S. dollar against a basket of six other currencies rose 0.61% to last stand at 98.28.

The Japanese yen and Swiss franc, both considered safe havens, were steady against the dollar, having each gained about 0.5% earlier in the day.

The dollar's ​​biggest gainer came against currencies that are positively correlated with risk sentiment — the Australian dollar and the New Zealand dollar — which both fell about 1%. The euro reversed a four-day rally and traded down 0.5% at $1.1528.

Investors also snapped up U.S. Treasury bonds, sending the benchmark 10-year yield down as much as 4.7 basis points at one point to a more than one-month low of 4.31%. Gold prices jumped 1.1% to its strongest since early May.

DOLLAR TO SHOCK DURING WEEK

Friday's developments created uncertainty for investors who are dealing with concerns about the outlook for global trade and inflation.

Despite the day's gains, the U.S. dollar index traded near its lowest level since March 2022, reached earlier this week, as a U.S.-China trade truce provided little clarity and U.S. President Donald Trump said he would outline unilateral trade terms with other economies in the coming days.

The index is on track for a weekly decline of nearly 1%, its biggest drop in more than three weeks, and is set for losses against the yen, Swiss franc and euro.

"Geopolitical noise may temporarily distort the dollar's ​​downtrend and temporarily weigh on risk proxies especially ahead of the weekend," said Christopher Wong, currency strategist at OCBC.

Two inflation reports this week showed price pressures were subdued, fueling expectations of more aggressive interest rate cuts by the U.S. Federal Reserve. However, tariffs could weigh on prices in the coming months, analysts warn.

Crude oil prices surged more than $5 a barrel after the Israeli strikes on concerns about supply disruptions in the oil-rich region, which could also add to price pressures.

On Friday, investors will assess the University of Michigan's preliminary survey from the U.S. to see how consumers have fared this month. Reports on final consumer inflation are also expected from Germany, France and Spain. (alg)

Source: Reuters