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The U.S. dollar gained ground on Thursday as geopolitical risks, particularly the escalating Israel-Iran conflict, drove investors toward safe-haven assets. Meanwhile, a flurry of central bank decisions, including an unexpected rate cut from Norway, kept market participants on edge.
Geopolitical Tensions Boost Dollar’s Safe-Haven Status
The dollar saw a modest rise, reclaiming its status as a safe-haven asset amid rapidly growing geopolitical tensions. The Israel-Iran conflict entered its seventh day on Thursday, with both sides continuing to carry out air attacks. As concerns mount over potential U.S. involvement in the conflict, President Donald Trump has kept markets uncertain about whether the United States will join Israel’s bombardment of Iranian nuclear sites.
This uncertainty surrounding U.S. military actions, coupled with broader regional instability, provided support for the dollar as investors sought refuge in the currency.
Central Banks Weigh on Market Sentiment
The Federal Reserve’s decision to keep interest rates steady on Wednesday had little immediate effect on the dollar, although markets are still anticipating rate cuts later this year. Fed Chair Jerome Powell’s comments that goods price inflation will likely rise over the summer, due to President Trump’s trade tariffs, underscored the challenges facing policymakers amid ongoing tariff-related uncertainties.
The Bank of England also decided to leave rates unchanged on Thursday, citing persistent inflation and global uncertainties as key concerns for the economic outlook. The British pound initially dipped following the decision but later recovered much of the losses.
Meanwhile, the Swiss National Bank (SNB) followed expectations with a rate cut, which helped strengthen the Swiss franc against the dollar.
However, the Norges Bank in Norway surprised markets by cutting rates by 25 basis points, even though expectations had been for the central bank to hold rates steady. This decision led to a sharp appreciation of the dollar and the euro against the Norwegian krone, with both currencies up 1% and 0.7%, respectively.
The Norwegian krone is still one of the top-performing major currencies against the dollar this year, with a gain of around 11%.
Dollar Index and Other Currencies
The dollar index, which measures the greenback against a basket of six major currencies, was flat at 98.9 and was on track for a 0.8% weekly gain, its strongest weekly performance since late February.
The euro traded lower at $1.1484, while the dollar rose 0.3% against the yen to 145.62. Analysts noted that investors might be looking to cover their short-dollar positions, contributing to the dollar’s upward movement.
Currency Movements Elsewhere
In contrast, the Australian dollar fell 0.6% to $0.6469, and the New Zealand dollar dropped 0.9% to $0.598. These declines reflect the broader risk-off sentiment as investors grew wary of the geopolitical situation and awaited further clarity on global monetary policy.
U.S. Market Holiday Impact
U.S. markets were closed on Thursday for the federal Juneteenth holiday, which likely led to lower liquidity in the markets. This holiday break may have contributed to some volatility in the currency and financial markets.
The U.S. dollar rose on Thursday, driven by heightened geopolitical risks and central bank actions. As the Israel-Iran conflict continues, concerns about potential U.S. military involvement kept risk appetite subdued, supporting the dollar. Additionally, central bank decisions, including the unexpected rate cut by the Norges Bank, further influenced market sentiment. Investors are likely to stay cautious as they await further developments on both geopolitical and economic fronts.
