U.S. and Israel strengthen crackdown efforts to boost the dollar

Investing.com - After the latest military actions against Iran in the United States and Israel, the US dollar may find short-term support, although broader currency reactions could still be uneven.

“Weekend escalation of the Iran situation has added tailwinds to the recent dollar movement through higher energy prices — oil prices rise 10%, and the dollar increases by 0.5-1% — while risk aversion also heightened,” said Themistoklis Fiotakis, Head of FX Research at Barclays.

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Washington and Tel Aviv launched a new round of strikes, apparently larger than earlier actions, with reports indicating significant losses to Iran’s leadership, including Supreme Leader Ali Khamenei. President Donald Trump outlined comprehensive war objectives in a video speech, suggesting the operation could last days or weeks.

HSBC strategist David May said the dollar should initially benefit from the surge in geopolitical risk.

“The dollar may gain in the short term,” May said, noting that this reaction could differ from the market performance during the Iran conflict in June 2025.

At that time, the safe-haven rebound in the dollar quickly faded as domestic policy uncertainties pressured market sentiment. That event sparked discussions about whether the dollar was losing its traditional defensive appeal.

“This will contrast with its performance during the June 2025 Iran war,” May said. “Back then, the dollar’s knee-jerk strength proved very short-lived because U.S. policy uncertainty was the dominant factor weakening the currency.”

May believes that the early pattern does not imply a structural erosion of the dollar’s safe-haven status.

“We don’t think that’s the case,” he said, adding that geopolitical shocks often send mixed signals in the FX market.

HSBC warned that any persistence of dollar strength will largely depend on the broader macro environment and how risk sentiment evolves.

“Geopolitical events can send confusing signals for currencies, not just the dollar,” May concluded.

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