Dollar Holds Firm Amid Escalating Middle East Tensions and Rising Oil Prices

The US dollar held firm near a two-week high on Wednesday as renewed hostilities in the Middle East drove oil prices higher, reviving inflation concerns and adding upward pressure on bond yields. The dollar's appeal as a safe-haven currency has been reinforced by rising Treasury yields and growing expectations of a Federal Reserve rate hike.

The U.S. launched a barrage of airstrikes on Iran on Tuesday, prompting Iranian retaliation in the most serious escalation in weeks. Oil prices rose, with WTI up 0.75% at $95.36 a barrel and Brent up 0.41% at $90.62. The yield on the benchmark U.S. 10-year note rose to as high as 4.812%, its firmest since November 2023.

Daisuke Shimazu, chief market strategist at Sumitomo Mitsui Trust Bank, said 'U.S. yields have been creeping higher again, lending support to the U.S. dollar.' Higher yields drive investors to buy safe-haven currencies, including the US dollar, while undermining the case for riskier assets like equities.