The Middle East conflict escalation boosts safe-haven demand, and the US dollar index rises to its highest since January 2026

March 4 News: As the situation in the Middle East rapidly worsens, global funds are accelerating their flow into safe-haven assets. The US Dollar Index (DXY), which measures the dollar against six major currencies, rose about 1% on Tuesday to 99.34, the highest level since January 2026. The previous day, the index had already increased nearly 1%, indicating a quick return of funds to dollar assets amid rising geopolitical risks.

Since the escalation of conflicts related to Iran, the dollar has gained approximately 1% against the euro and yen. In recent months, some investors viewed the euro and yen as alternative safe-haven assets to the dollar, but as the Middle East situation spreads, market risk aversion has shifted back to the dollar system.

Initially, the conflict was centered between the US and Iran, but it later expanded to neighboring countries. Multiple reports indicate missile attacks near the US embassy in Riyadh, as well as attacks on data center facilities in the UAE and Bahrain. Meanwhile, the US government has ordered the evacuation of some non-essential personnel from Bahrain, Iraq, and Jordan. Israel has stated that, following missile and drone attacks from Hezbollah in Lebanon, it will carry out military operations against targets in Iran and Lebanon.

Analysts point out that the US energy structure provides additional support for the dollar in the current situation. Due to the US’s strong energy self-sufficiency, the impact of rising oil prices is significantly lower than in Europe and some Asian economies. ING analyst Chris Turner said that, in the context of energy price shocks, the dollar is one of the main currencies most likely to benefit.

In contrast, the euro faces greater pressure. On Tuesday, the euro fell about 1% against the dollar to around 1.1581. Europe’s high dependence on energy imports, combined with rising natural gas prices due to conflict risks, further weakens the euro. ING noted that the market still holds large euro long positions, and until the situation shows clear signs of easing, funds may remain cautious.

Despite the recent strength of the dollar, over a longer cycle, the dollar index has still declined about 6.5% over the past 12 months. Analysts believe that if energy prices remain high and geopolitical risks increase, the dollar index could continue to find support in the short term, with market focus gradually shifting the range upward to around 99.50 to 100.00.