Dollar Climbs to Highest Level in 1.5 Weeks Amid Iran-US Tensions

The US dollar hovered near a one-and-a-half-week high on Thursday, buoyed by ongoing tensions between Iran and the United States. The recent seizure of two ships by Tehran in the Strait of Hormuz has renewed concerns, propelling oil prices back above the $100 mark and unsettling investors.

President Donald Trump extended an indefinite ceasefire with Iran, yet little progress appears to be made toward restarting peace negotiations. Both nations remain deadlocked over ceasefire conditions, naval blockades, nuclear programs, and control of the strategically vital Strait of Hormuz, which continues to be effectively closed, adding strain to global energy supplies and the markets.

Philip Wee, a senior foreign exchange strategist at DBS, described current market activity as hesitant, with traders reluctant to take firm directional positions amid a "tense wait-and-see consolidation" following recent relief rallies that were sparked by early hopes of de-escalation.

The euro eased to $1.1699, touching lows not seen since April 13 earlier in the session, marking its first weekly decline in four weeks at just under half a percent. The British pound also slipped slightly to $1.3484. Meanwhile, the Australian and New Zealand dollars dipped 0.2% and 0.3% to $0.7147 and $0.5886, respectively.

The Japanese yen held steady around 159.56, close to the critical 160 level that Japanese authorities monitor for potential market intervention. The Bank of Japan is expected to maintain its current interest rates next week, while hinting at possible hikes as early as June.

The US Dollar Index, which gauges the greenback against a basket of six major currencies, edged up to 98.676, close to its highest since April 13. This represents a moderate weekly gain of approximately 0.5%, rebounding after two weeks of declines.

Earlier in March, the dollar gained sharply due to safe-haven demand amidst the outbreak of conflict. However, a subsequent ceasefire and the prospect of peace talks launched a risk-on rally that shaved off most of those gains - until recent escalations reignited concerns.

The persistent conflict has battered fuel prices and consumer confidence, now at record lows, while largely wiping out expectations for US interest rate cuts this year. Economists surveyed by Reuters anticipate the Federal Reserve will hold off on cutting rates for at least six months due to inflation pressures fueled by energy shocks.

Upcoming US economic data, including initial jobless claims and Purchasing Managers' Index readings, are being closely watched for signs of how soaring energy costs may be rippling through the wider economy.