Why did the dollar rise sharply on Thursday, and what key market indicators reflected this move?

The dollar rose sharply on Thursday because intensifying conflict in the Middle East—particularly Iran-backed Houthi attacks on commercial ships and heightened U.S. rhetoric, including President Donald Trump stating he would hold Iran responsible for further attacks—sparked concerns over energy supply disruptions and reignited inflation fears as oil prices topped $100 a barrel. This drove expectations that the Federal Reserve would keep interest rates higher for longer, with traders fully pricing in a rate hike in September and some even anticipating a move as early as the following week; the Bloomberg Dollar Spot Index rose 0.3%, marking its best weekly performance in a month, while benchmark 10-year Treasury yields hit a year-to-date peak.

What did market experts say about the dollar’s near-term outlook, and which currencies were most affected?

Market experts expressed bullish sentiment on the dollar’s near-term trajectory: Andrew Hazlett of Monex Inc. noted the market was supporting a 'higher-for-longer' narrative and cited Middle East escalations as driving 'haven support' for the dollar, while Marcus Jennings of Wells Fargo stated, 'Generally over the next three months, we remain bullish the dollar' and added that 'the risk of this tactical correction lower in the dollar is diminishing.' The dollar advanced against nearly all major peers—most notably the New Zealand dollar, which underperformed; the Swiss franc fell to its lowest level in over a year; and the yen weakened to its lowest point in four decades, dropping as low as 163.99 per US dollar on Thursday.

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Escalating Middle East conflict has pushed oil prices above $100 per barrel. This surge strengthens the US dollar and raises expectations for Federal Reserve interest rate hikes due to inflation fears.

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