Dollar holds steady

The US dollar held broadly steady in Asian trade ​on Friday and was poised for its steepest weekly gain in more than a year as the escalating conflict in the Middle East drove demand for safe-haven ‌assets.

The euro and yen remained on the back foot as the crisis drove oil prices ever higher, spurring inflation risks in economies dependent on energy imports and upending policy expectations for the Federal Reserve and other central banks.

Earlier hopes for a de-escalation gave way to fresh uncertainty, with Iran warning that Washington would “bitterly regret” the sinking of an Iranian warship. US President Donald Trump said he wanted to be involved in choosing ​Iran’s next head of state after US and Israeli air strikes killed Supreme Leader Ali Khamenei in the early moments of the war.

“If the Middle Eastern conflict ​continues at its current intensity, it’s likely to bring sustained higher inflation, a stronger US dollar, and a vastly reduced chance of Fed ⁠rate cuts,” IG market analyst Tony Sycamore wrote in a note.

The dollar index , which measures the greenback against a basket of currencies, was trading a touch lower at 99.03, still on ​course for a 1.4 percent gain this week that would be the most since November 2024.

The euro was little changed at $1.161 and set for a 1.7 percent slide this week. The yen fell ​0.2 percent to 157.83 per dollar. Sterling nudged up 0.02 percent to $1.3358.

The war intensified on Thursday, with US and Israeli jets hitting areas across Iran, and Gulf cities coming under renewed bombardment.

In a phone interview with Reuters, Trump said Mojtaba Khamenei, a son of the late supreme leader who has been considered a favorite to succeed his father, was an unlikely choice.

The greenback was one of a handful of winners in a volatile ​few sessions that have dragged stocks, bonds and, at times, even safe-haven precious metals lower.

“Broadly speaking, we are seeing most clients reduce risk across both G10 and EM currencies,” said ​Nathan Swami, head of FX trading for Japan, Asia North, Asia South and Australia at Citi in Singapore.

“When the conflict started over the weekend, we saw hedgers and custodians buy dollars in many of the onshore ‌markets. Central bank ⁠support has kept Asian FX markets in check for now, but we think more depreciation pressure will build up the longer the conflict lasts.”

Bank of Japan Deputy Governor Ryozo Himino said in parliament that the weak yen was pushing up import costs and may affect underlying inflation.

If the Middle East conflict and closure of the Strait of Hormuz last only about a month, the impact on growth in developing Asia would be modest, said Albert Park, chief economist for the Asian Development Bank.

The spike in energy prices from the Middle East war has stoked fears of ​a resurgence in inflation, with overnight index swaps (OIS) ​showing shifts in rate outlooks for major ⁠central banks.