The upward momentum is driven by escalating tensions in the Middle East, which have triggered active demand for the dollar as a traditional safe-haven asset during periods of global uncertainty. However, analysts remain cautious about forecasting the full economic consequences of the confrontation between the United States, Iran, and their allies. Much will depend on the duration of the acute phase of the conflict, which already includes the blockade of the Strait of Hormuz and disruptions to energy supplies from Persian Gulf countries, as well as the scale of further gains in crude oil prices.
Under a negative scenario, oil prices could temporarily surge to $120.0–150.0 per barrel, fueling a sharp acceleration in inflation while economic growth slows and public debt expands. In such circumstances, the Federal Reserve would face a difficult policy choice. Signs of price pressure were already visible before the outbreak of hostilities, making inflation a priority for monetary authorities. In January, the Producer Price Index eased from 3.0% to 2.9%, less than expected (2.6%), while the core reading accelerated from 3.3% to 3.6%. Meanwhile, manufacturing activity continues to recover, reaching 51.2 points in February.
This backdrop may justify an extended pause in the easing cycle or even a rate hike. The CME FedWatch Tool currently indicates a 97.5% probability of rates remaining in the 3.50–3.75% range, though the likelihood of policy changes at the July meeting has already climbed to 50.0%. A sustained rise in oil prices could also lead to domestic political instability in the US. While Republicans currently control the House of Representatives, the balance of power could shift after the midterm elections, as voters increasingly express dissatisfaction with rising gasoline prices. Following the start of the Ukraine conflict, gasoline prices climbed to $5.2 per gallon before easing to around $3.0; a prolonged US-Iran conflict could push them higher again.
Eurozone
The euro is gaining against the pound but weakening versus the US dollar and the yen.
Investors and forex traders are focused on preliminary February inflation data: the monthly figure accelerated from –0.6% to 0.7%, while the annual rate rose from 1.7% to 1.9%. Core inflation increased from –1.1% to 0.8% month-on-month and from 2.2% to 2.4% year-on-year, remaining close to the European Central Bank’s target. However, the broader acceleration trend raises concerns, particularly given rising oil prices amid the US-Iran military confrontation. ECB Chief Economist Philip Lane told the Financial Times that a prolonged conflict could trigger a “significant inflation spike” due to energy shortages and a sharp decline in production. Bank of Greece Governor Yannis Stournaras echoed this view, emphasizing the uncertainty surrounding the duration of hostilities and their economic impact.
United Kingdom
The pound is losing ground against the euro, yen, and US dollar.
February data from the British Retail Consortium (BRC) showed retail price growth slowing from 1.5% to 1.1%, below expectations of 1.4%. Food price inflation eased from 3.9% to 3.5%, while non-food prices slowed from 0.3% to 0.1%. Investors are also watching Chancellor Rachel Reeves, who is set to present the updated government budget along with revised economic forecasts and borrowing estimates.
Japan
The yen is strengthening against the pound and euro but weakening against the US dollar.
Capital investment data showed a 6.5% increase in the fourth quarter, well above the expected 3.0%, confirming strong investment appeal. However, the situation may shift due to the suspension of LNG imports from Qatar amid ongoing hostilities. According to Reuters sources, the Bank of Japan may refrain from raising interest rates this month to fully assess the macroeconomic impact of the Middle East conflict.
Australia
The Australian dollar is weakening against the euro, yen, pound, and US dollar.
Investors are focused on comments from Reserve Bank of Australia Governor Michele Bullock, who signaled the possibility of a rate hike as early as this month and projected easing inflation expectations. GDP data for the fourth quarter will be released tomorrow at 02:30 (GMT+2), with quarterly growth expected to accelerate from 0.4% to 0.7% and annual growth to reach around 2.1%, potentially supporting the currency.
Oil
Oil prices are rising sharply amid escalating military tensions between the US and Iran.
The Strait of Hormuz has been blocked for a fourth consecutive day after Iranian forces reportedly attacked five tankers, effectively removing around 20.0% of Middle Eastern oil and gas supplies from the market. Qatar has announced the closure of LNG production facilities that supply about one-fifth of global demand. Saudi Arabia has suspended operations at its largest refinery, while Israel and Iraqi Kurdistan have also cut output. Market participants are accelerating purchases amid fears of further price spikes, although gains have moderated following statements by US Secretary of State Marco Rubio, who said Treasury Secretary Scott Bessent and Energy Secretary Chris Wright would announce measures to address oil price dynamics. Analysts suggest the administration could release part of the strategic petroleum reserve, currently totaling 4.4 billion barrels. At 23:30 (GMT+2), the American Petroleum Institute (API) will publish weekly data on crude, gasoline, and distillate inventories, with crude stocks expected to rise by 2.200 million barrels, potentially tempering the bullish momentum.
