Dollar on Track for Steepest Weekly Gain in a Year as Iran War Boosts Haven Demand
By Sophie Kiderlin and Rocky Swift
Published: March 6, 2026
The U.S. dollar remained steady on Friday and is poised for its largest weekly increase in over a year. The surge is primarily driven by escalating tensions in the Middle East, specifically the ongoing conflict involving Iran, which has heightened global demand for safe-haven assets.
Geopolitical Tensions Propel Dollar Strength
The recent outbreak of hostilities involving Iran has sent shockwaves through financial markets. Israel launched heavy airstrikes targeting Hezbollah-controlled areas in the southern suburbs of Beirut and initiated a broad campaign against key infrastructure in Tehran. In retaliation, Iran claimed to have fired missiles aimed at Tel Aviv’s core. This intensification of conflict has fueled investor anxiety, prompting a flight to the safety of the U.S. dollar.
Adding to the turmoil, U.S. President Donald Trump announced his intention to take an active role in selecting Iran’s next leader following the death of Supreme Leader Ali Khamenei during the initial airstrikes. Trump also encouraged Iranian Kurdish forces in Iraq to escalate attacks against Iran, further raising the prospect of a prolonged and expanding conflict.
Market Reactions: Euro and Yen Decline Amid Rising Oil Prices
The turmoil has weighed heavily on other major currencies. The euro and Japanese yen have both slipped as surging oil prices — a direct consequence of Middle Eastern instability — amplify inflation concerns in energy-importing economies. This dynamic is complicating monetary policy forecasts, particularly for the Federal Reserve and other prominent central banks.
The euro recently fell 0.16% to $1.159, setting it on course for a 1.9% decline this week — its steepest drop since September 2022. The yen weakened by 0.1% to 157.77 per dollar, while the British pound edged down to $1.3347. ### Dollar Index and Energy Price Impact
The dollar index, which tracks the dollar against a basket of currencies, inched higher to 99.14 on Friday. The index is headed for a 1.5% weekly gain — its largest since November 2024. Senior currency analyst Lee Hardman of MUFG emphasized the central role energy prices play in the dollar’s trajectory. He noted, “The key driver will ultimately be the scale of the energy price shock. If oil prices continue to surge and stay elevated for an extended period, it will strongly support further dollar strength. However, if the conflict shows signs of de-escalating and oil prices retreat, then the current dollar rally might reverse more quickly.”
Broader Market Volatility and Risk Aversion
This week’s market activity has been marked by volatility, with declines not only in stocks and bonds but also in typically resilient safe-haven assets like precious metals. Nathan Swami, head of FX trading for Citi Asia Pacific, commented, “Most clients are reducing risk exposure across G10 and emerging market currencies amid heightened uncertainty.”
Inflation Concerns and Central Bank Outlooks
The spike in energy prices has heightened fears about a resurgence of inflation globally. This has led traders to revise their rate expectations for major central banks. According to CME Group’s FedWatch tool, the probability of a Federal Reserve rate cut by June has fallen to around 34%. Similarly, markets have scaled back anticipation of rate easing by the Bank of England and increased bets on possible European Central Bank rate hikes later this year.
Focus on U.S. Employment Data
Amid geopolitical turmoil, attention also turned to February’s U.S. employment report. Economists surveyed by Reuters forecast a modest rise of 59,000 nonfarm payroll jobs in February, following January’s increase of 130,000. The unemployment rate is expected to remain steady at 4.3%.
Hardman warned that a stronger-than-expected employment report could further reduce expectations for Fed rate cuts and potentially trigger a global bond market selloff, which would likely bolster the dollar’s safe-haven appeal even more.
Recent data from Thursday showed stable jobless claim figures and a sharp decline in layoffs, reinforcing the picture of a resilient U.S. labor market.
Cryptocurrency Market Update
In the cryptocurrency market, bitcoin slipped 0.96% to $70,459.79, while ether declined by 1.21% to $2,055.42 amid the broad risk-off sentiment.
The evolving Iran conflict continues to be a significant catalyst for financial markets, underpinning the dollar’s rise and contributing to elevated uncertainty across currencies, commodities, and equities worldwide. Market participants will closely monitor developments on the ground as well as upcoming economic data releases for further direction.