The US dollar index posted a weekly gain of 0.6% on Friday, snapping a two-week losing streak. The gains were driven by the safe-haven status of the US dollar amid escalating geopolitical tensions between Washington and Tehran. Investors are now viewing the US dollar as a stable hedge as global market volatility mounts.
The US’s status as a major energy exporter gives the dollar a strategic advantage. The US’s ability to self-supply its energy helps insulate its domestic economy from global crude oil price shocks resulting from the closure of the critical trade route through the Strait of Hormuz. This makes the US dollar more attractive than the currencies of energy-importing countries that are more vulnerable to supply crunches.
The situation on the ground remains tense despite the formal extension of the ceasefire. Iran’s continued attacks on merchant ships in the Strait of Hormuz, followed by the seizure of ships by the US Navy, suggest that a lasting diplomatic solution is still far from being achieved. President Donald Trump has also signaled that his administration will not rush to end the military campaign.
Meanwhile, Pakistan continues to play a role as a mediator in efforts to reconcile the two sides. Iranian Foreign Minister Abbas Araghchi is scheduled to arrive in Islamabad this weekend for a new round of ceasefire talks. The Iranian delegation's presence is seen as a small step towards diplomacy, but markets remain cautious about the effectiveness of the talks.
In Asia, regional currencies mostly weakened against the US dollar, with the Japanese yen the worst-hit. Despite data showing that consumer inflation in Japan rose more than expected in March, investors remain confident that the Bank of Japan (BOJ) will keep interest rates unchanged at its meeting next week, further weighing on the yen.
