US Dollar Hits 18-Month Peak Amid Middle East Conflict, Reuters Reports
The United States dollar reached an 18-month peak of 102.58 units on Monday, driven by safe-haven demand as Middle East conflict escalates and investors await domestic inflation data, according to Reuters reporting by Laura Matthews in New York.
While the currency index climbed 0.4% to reach levels not seen since April 2025, currency traders had maintained substantially lighter positions earlier in the month before geopolitical tensions redirected capital flows.
The divergence between fading consumer sentiment and surging dollar strength highlights distinct pressures across international financial architecture.
Geopolitical Shockwaves Drive Crude Volatility and Currency Demand
Crude prices showed steep volatility over the weekend following intensified Houthi attacks against Saudi Arabia and strikes on two oil tankers. Brent crude futures rose 1.93 dollars to settle at 106.65 dollars per barrel, staying nearly 45% above pre-conflict levels despite a Sunday announcement by United States President Donald Trump regarding an energy ceasefire between Ukraine and Russia, as detailed by Reuters.
MarketScreener reported that Brent futures reached 106.80 USD, a gain of 2.09%, while noting remarks from Joel Kruger, market strategist at LMAX Group in London. Kruger stated that sentiment deteriorated rapidly after a relatively calm start to the week as renewed geopolitical uncertainty and rising oil prices crushed risk appetite.
These energy shocks directly feed foreign exchange movements. Regulators’ weekly data show institutional investors expanded their bullish dollar holdings to roughly 36,000 million dollars by October 7, jumping from just 8,400 million dollars three weeks prior, primarily at the expense of the euro, according to Reuters figures.
Federal Reserve Adopts Restrictive Policy to Combat Inflation
MarketScreener noted analysis from Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, who pointed out that a rate hike immediately ahead of an election remains highly unusual, setting a high barrier for further tightening. CME FedWatch tools show investors pricing in an 78% probability that the central bank will keep rates unchanged at its upcoming meeting, up from 51% a month earlier.
Domestic consumer sentiment data released last week indicated continued deterioration at the start of October. Households view the broader economy through the lens of heightened living costs stemming directly from the Middle East conflict, a factor feeding directly into positioning ahead of Wednesday’s Consumer Price Index report.
European Fiscal Pressures Weigh on the Euro
Currency markets reflected severe regional divergence as the euro dropped 0.4% to 1.1156 dollars, hovering near a 17-month trough, following its fifth week of losses. MarketScreener placed the euro slightly higher at 1.1180 USD while attributing the downward trajectory to deep investor anxiety over France’s fiscal health ahead of the 2027 presidential elections.
The yield spread between 10-year French sovereign bonds and benchmark German bunds widened to 140 basis points, after coming close to 160 basis points the previous week. Meanwhile, the dollar advanced 0.2% against the Japanese yen to 158.57, trading within a thin volume session due to a holiday in Japan, while the British pound dropped 0.2% to 1.3203 dollars.