US Dollar Struggles Near 101 as Middle East Tensions Escalate and Traders Await US Data

Key Points

• The US Dollar failed to gain strong safe-haven momentum despite renewed US-Iran tensions.
• EUR/USD and GBP/USD moved higher as traders waited for US jobless claims, existing home sales and Fed commentary.
• Oil prices slipped after an initial geopolitical risk rally, suggesting markets were not fully pricing in a supply shock.

US Dollar loses momentum despite Middle East escalation

The US Dollar struggled for direction on Thursday as traders weighed fresh Middle East escalation against upcoming US economic data and Federal Reserve commentary.

The latest geopolitical risk came after reports that the US carried out another round of strikes on Iranian targets, while Iran retaliated by attacking US-linked military bases in Bahrain and Kuwait. However, the market reaction remained relatively contained, with US equity futures pointing higher and oil prices moving lower after an earlier risk-driven rise.

The US Dollar Index remained close to the 101 area, but demand for the greenback was not strong enough to dominate wider FX trading. This suggested that investors were still focused on economic data, Treasury yields and Fed policy signals rather than moving aggressively into defensive dollar positions.

US data and Fed speakers remain the next focus

Currency traders are now watching the US economic calendar for fresh signals on the strength of the economy. Thursday’s schedule includes weekly initial jobless claims, New York Fed President John Williams’ remarks, June existing home sales and comments from Dallas Fed President Lorie Logan.

The data may matter for dollar direction because markets are still assessing whether sticky inflation, higher oil prices and resilient labour-market conditions could keep the Fed cautious for longer. A stronger-than-expected data set could support Treasury yields and help the dollar stabilise, while weaker numbers may add pressure on the greenback.

Euro and pound extend gains against the dollar

The euro gained ground as the dollar softened, with EUR/USD moving toward the 1.1450 region during European trading. The pair benefited from the broader pullback in the dollar, although upside momentum may remain limited if US yields rise again.

Sterling also held firm, with GBP/USD trading above the 1.3400 level and reaching its strongest area in around three weeks. The move reflected both dollar weakness and improving short-term momentum in the pound.

Yen strengthens as BOJ keeps regional view unchanged

The Japanese yen also advanced, pushing USD/JPY lower after recent dollar gains. The pair traded below the 162.50 area as traders monitored both geopolitical risk and Japan’s domestic policy outlook.

The Bank of Japan kept its assessment unchanged for all nine Japanese regions in its latest quarterly report, with most regions continuing to show moderate recovery.

Indian rupee opens firmer, but oil risk remains

The Indian rupee opened stronger against the dollar, supported by broad-based softness in the greenback. USD/INR moved lower toward the 95.40 region in early trading.

However, the rupee’s outlook remains sensitive to crude oil prices. India is a major oil importer, so any renewed rise in Brent or WTI caused by Middle East disruption could pressure the currency again.

Outlook: dollar direction depends on data, oil and risk appetite

For now, the dollar’s weakness suggests markets are not treating the latest Middle East escalation as a full-scale safe-haven event. The next move may depend on whether US data strengthens the case for higher-for-longer Fed policy or whether weaker figures encourage more dollar selling.

Oil prices, gold, Treasury yields and equity futures remain the key cross-market indicators to watch. A renewed oil spike could revive inflation concerns and support the dollar, while calmer energy markets may allow EUR/USD and GBP/USD to extend their short-term recovery.