The dollar rose on Thursday, boosted by safe-haven demand amid the threat of a wider conflict in the Middle East and possible U.S. involvement, while investors weighed Federal Reserve Chairman Jerome Powell's warning tone on inflation.
After a quiet start in Asian hours, the dollar strengthened across the board, weighing on risk-sensitive currencies after a report said U.S. officials were preparing for a possible attack on Iran in the coming days.
The Australian dollar fell as much as 0.5% but was last down 0.3% at $0.6489, while the New Zealand dollar fell 0.5% to $0.5998. Emerging-market currencies also struggled, with the South Korean won weakening 1%.
The rapidly escalating geopolitical tensions have caused the dollar to quickly regain its safe-haven status, making inroads against the yen, euro and Swiss franc.
Iran and Israel exchanged airstrikes on Thursday, as the conflict entered its seventh day. Concerns over potential U.S. involvement have also grown, as President Donald Trump has left the world wondering whether the United States will join Israel in bombing Iran's nuclear sites.
The conflict has raised concerns about wider regional instability, compounded by spillover effects from the Gaza war.
Some analysts say investors are looking to cover their short positions.
"The dollar looks set for a short-covering rally — especially if the U.S. gets involved in a Middle East conflict," said Matt Simpson, senior analyst at City Index.
Geopolitical concerns appear to have overshadowed the FOMC outcome, according to Christopher Wong, currency strategist at OCBC. "Risk aversion is dominating sentiment, and that's putting pressure on risk-sensitive FX."
U.S. markets are closed on Thursday for the Juneteenth federal holiday, which has led to lower liquidity.
The euro hit a one-week low and was last down 0.25% at $1.1455, heading for a 0.8% drop this week, its biggest weekly decline since February. The yen last stood at 145.13 per dollar.
The dollar index, which measures the currency against six other units, rose 0.11% to 99 and was set for a gain of about 0.9% for the week, its strongest weekly performance since late January. (alg)
Source: Reuters
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