Dollar Rides Oil Price Surge Amid Escalating Middle East Tensions

The US dollar maintained its strength on Wednesday as tensions in the Middle East led to an increase in oil prices, pushing inflation concerns. The currency's safe-haven appeal was reinforced by rising Treasury yields and growing expectations of a Federal Reserve rate hike, despite recent economic data coming in below forecasts.

The U.S. launched airstrikes on Iran on Tuesday, prompting Iranian retaliation and escalating tensions in the region. Oil prices rose nearly 1% in early trade on Wednesday, with WTI crude up 0.92% at $95.52 a barrel and Brent crude 0.89% firmer at $91.02.

Kumiko Ishikawa, a senior FX analyst at Sony Financial Group, said 'Continued vigilance is needed over the situation in the Middle East today.' The dollar index held steady at 99.67, while markets now price in a 67% chance of a September Fed hike, up from around 40% a week earlier.