The US dollar held steady on Friday but remained on track for its largest weekly gain in more than a year, as the escalating conflict in the Middle East strengthened demand for safe-haven assets.

Meanwhile, both the euro and the Japanese yen remained under pressure, as the crisis pushed oil prices higher, raising inflation risks for energy-importing economies and complicating monetary policy expectations for the Federal Reserve and other central banks.

Earlier hopes for easing tensions with Iran faded, replaced by renewed uncertainty and concerns about how long the conflict could last. Israel launched heavy airstrikes on Hezbollah-controlled southern suburbs of Beirut on Friday and began a “large-scale” wave of attacks on infrastructure in Tehran, while Iran said it targeted central Tel Aviv with missiles.

US President Donald Trump said on Thursday that he wants a role in selecting Iran’s next president after US and Israeli airstrikes killed Supreme Leader Ali Khamenei in the early hours of the war. He also encouraged Iranian Kurdish forces in Iraq to launch attacks against Iran as the conflict widened.

Lee Hardman, senior currency analyst at Mitsubishi UFJ Financial Group, said the dollar is expected to continue rising in the near term.

He added: “The main driver will ultimately be the scale of the energy price shock. If oil prices continue to rise and remain elevated for longer, that would be the most supportive scenario for a stronger dollar.”

He continued: “However, if signs of de-escalation begin to appear and oil prices retreat, we could see a faster reversal of the recent dollar strength.”

The dollar index, which measures the US currency against a basket of major peers, edged slightly higher to 99.14 and is on track for a weekly gain of about 1.5%, the largest since November 2024.

The euro fell 0.16% on the day to $1.159 and is heading for a weekly decline of 1.9%, its largest drop since September 2022. The yen also slipped 0.1% to ¥157.77 per dollar, while the British pound edged slightly lower to $1.3347.

The dollar has been one of the few winning assets during highly volatile trading sessions this week, which have seen declines in stocks, bonds, and even precious metals that are sometimes considered safe havens.

Nathan Swami, head of FX trading for Japan, North Asia, and Australia at Citigroup in Singapore, said: “Overall, we are seeing most clients reducing risk across G10 currencies as well as emerging market currencies.”

Shifting macroeconomic outlook

The surge in energy prices caused by the war with Iran has reignited concerns about the return of inflation, prompting markets to adjust expectations for the path of interest rates among major central banks.

Traders have pushed back expectations for the Federal Reserve’s next rate cut, with the probability of a June cut falling to about 34%, according to the CME FedWatch tool. Expectations for rate cuts by the Bank of England have also been reduced, while money markets increased bets that the European Central Bank could raise interest rates later this year.

While the war with Iran remained the main focus for markets, attention on Friday also turned to the US February jobs report.

Economists expect nonfarm payrolls to have increased by about 59,000 jobs last month after a rise of 130,000 in January, according to economist surveys. The unemployment rate is expected to remain steady at 4.3%.

Hardman said stronger-than-expected data could lead to “further scaling back of Federal Reserve rate cut expectations,” and could also trigger selling pressure in global bond markets and additional support for the US dollar.

Data released on Thursday showed that the number of Americans filing new claims for unemployment benefits was unchanged last week, while layoffs fell sharply in February, consistent with a still-stable labor market.

Gold prices rose in European trading on Friday, moving into positive territory ahead of the release of the latest US employment data, which is expected to provide decisive clues about the likelihood of US interest rate cuts during the first half of this year.

Despite the rebound, the precious metal is still heading toward its largest weekly loss of the year, as investors continue to favor the US dollar as a preferred alternative investment amid rising concerns over the fallout from the Iran war and the risk of a global energy crisis.

Price Overview

Gold prices today: gold rose 1.25% to $5,144.09, up from the session opening level of $5,082.19, after touching a low of $5,066.64.

At Thursday’s settlement, gold prices fell 1.15%, resuming losses that had paused the previous day during a recovery from a two-week low of $4,996.10 per ounce.

Weekly performance

Over the course of this week’s trading, which officially concludes with today’s settlement, gold is down more than 2.5%, on track for its first weekly loss in the past five weeks and its largest weekly drop since October 2025.

US Dollar

The dollar index rose more than 0.1% on Friday, maintaining gains for a second consecutive session while trading near its highest level in four months, reflecting the strength of the US currency against a basket of major and secondary currencies.

The rise comes as investors buy the dollar as a preferred safe-haven asset, with the Iran war entering its seventh day and fears growing of a broader conflict in the Middle East. These concerns have driven energy prices sharply higher and increased downside risks for the global economy.

The Iran war

On the seventh day of the conflict, Iran continued launching a series of missile attacks on Israel, the United Arab Emirates, Qatar, Bahrain, and Kuwait.

US Defense Secretary Pete Hegseth and Admiral Brad Cooper, commander of US forces in the Middle East, stated that the United States has sufficient munitions to continue its bombing campaign indefinitely.

The US–Israeli military strike against Iran, which began on Saturday, targeted sites across the country and triggered a forceful Iranian response.

US interest rates

US President Donald Trump officially nominated former Federal Reserve governor Kevin Warsh on Wednesday to lead the US central bank.

The Federal Reserve said in its latest Beige Book report released Wednesday that US economic activity grew slightly, prices continued to rise, and employment levels remained broadly stable in recent weeks.

According to the CME FedWatch tool from CME Group, markets are pricing a 97% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25-basis-point rate cut stands at just 3%.

US employment data

To reassess these expectations, markets are awaiting the monthly US employment report later today, which will include key labor market data, particularly the number of nonfarm jobs added in February, along with the unemployment rate and average hourly earnings.

The nonfarm payrolls report is scheduled for release at 13:30 GMT. Forecasts suggest the US economy added 58,000 jobs in February after adding 130,000 in January, with the unemployment rate expected to remain steady at 4.3%, while average hourly earnings are projected to rise 0.3% after increasing 0.4% previously.

Gold outlook

Kelvin Wong, market analyst for Asia-Pacific at OANDA, said geopolitical risks remain elevated and could even escalate, especially after the Iranian foreign minister stated that Iranian forces are prepared for any ground invasion by the United States or even Israel, which supports gold prices.

Wong added that gold prices are likely to remain volatile in the near term, with key support at $5,040 and resistance at $5,280, noting that prices could rise toward $5,448 if the resistance level is breached.

SPDR fund

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined by 5.15 metric tons on Thursday, marking a third consecutive daily drop and bringing total holdings down to 1,075.89 metric tons, the lowest level since February 17.

The euro edged lower in European trading on Friday against a basket of global currencies, extending losses for a second consecutive session against the US dollar and hovering near a four-month low. The currency is on track for its largest weekly decline since 2024, weighed down by surging global energy prices triggered by the fallout from the Iran war, which is expected to negatively affect economic activity in Europe.

The crisis is likely to push prices higher and accelerate inflation across the eurozone, placing policymakers at the European Central Bank under growing inflationary pressure.

At the same time, the European economy may require additional monetary support to counter slowing activity, creating a difficult balance between containing inflation and supporting growth.

Price Overview

Euro exchange rate today: the euro declined about 0.1% against the dollar to $1.1603, down from the opening level of $1.1610, after touching a session high of $1.1621.

The euro ended Thursday’s trading down 0.2% against the dollar, resuming losses that had paused the previous day during a brief recovery from a four-month low of $1.1530.

Weekly performance

Over the course of this week’s trading, which officially concludes with today’s settlement, the euro is down about 1.8% against the US dollar, on track for its second weekly loss in the past three weeks and its largest weekly drop since April 2024.

US Dollar

The dollar index rose more than 0.1% on Friday, maintaining gains for a second consecutive session while trading near its highest level in four months, reflecting the strength of the US currency against a basket of global peers.

The rise comes as investors buy the dollar as a preferred safe-haven asset, with the Iran war entering its seventh day and fears growing of a broader conflict in the Middle East. These concerns have driven energy prices sharply higher and increased downside risks for the global economy.

Strong US economic data and renewed speculation about inflationary pressures on the Federal Reserve have also reduced expectations for US interest rate cuts during the first half of this year.

Investors are awaiting the US February jobs report later today, which the Federal Reserve closely monitors in determining the path of monetary policy.

Global energy prices

Global oil and gas prices surged as a result of the US–Israeli war on Iran, which disrupted energy exports from the Middle East. Iranian attacks on ships and energy facilities led to the closure of shipping routes in the Gulf and halted production from Qatar to Iraq.

Brent crude rose about 18% this week, reaching a 20-month high of $86.22 per barrel, while European gas prices jumped more than 70% since the end of last week.

Views and analysis

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refill season is about to begin, and the European Union is entering the season with record-low gas levels in storage, meaning it will need to purchase large amounts of energy at a time when prices could rise significantly.

George Saravelos, head of global FX research at Deutsche Bank, said the impact of the Iran war on the euro/dollar pair revolves around one key factor: energy.

Saravelos added that a negative supply shock is currently forming, effectively acting as a direct tax on Europeans that must be paid to foreign producers in US dollars.

Analysts at ING wrote in a research note that the European Central Bank’s position has suddenly come into question, and they doubt the issue can be resolved in the very near term.

They added that the possibility of the ECB raising interest rates poses a serious risk to interest rate carry trades and could lead to a significant widening in eurozone government bond spreads.

European interest rates

Following higher-than-expected inflation data released this week in Europe, money markets sharply reduced pricing for a 25-basis-point rate cut by the European Central Bank in March from 25% to 5%.

Investors are now awaiting additional economic data from the eurozone on inflation, unemployment, and wages to reassess these expectations.

The Japanese yen fell in Asian trading on Friday against a basket of major and secondary currencies, extending losses for a second consecutive session against the US dollar and heading toward a third straight weekly decline, as investors continue to favor the US currency as a safe-haven alternative amid the fallout from the Iran war.

The Japanese currency slipped to its lowest level in six weeks, prompting Japan’s finance minister to warn against excessive moves in the foreign exchange market, stressing that authorities could intervene to support the local currency if necessary.

Weak labor market data in Japan also reduced expectations for a near-term interest rate hike, as investors await further evidence regarding the Bank of Japan’s monetary policy path this year.

Price Overview

Japanese yen exchange rate today: the dollar rose against the yen by 0.15% to ¥157.75, up from the opening level of ¥157.55, after touching a session low of ¥157.38.

The yen ended Thursday’s trading down 0.3% against the dollar, resuming losses that had paused the previous day during a brief recovery from a six-week low of ¥157.97.

Weekly performance

Over the course of this week’s trading, which officially concludes at today’s settlement, the Japanese yen is down about 1.15% against the US dollar, on track for a third consecutive weekly loss.

US Dollar

The dollar index rose more than 0.1% on Friday, maintaining gains for a second consecutive session and trading near its highest level in a month and a half, reflecting the strength of the US currency against a basket of global currencies.

The rise comes as investors buy the dollar as a preferred safe-haven asset, with the Iran war entering its seventh day and fears growing of a wider conflict in the Middle East. These concerns have driven energy prices sharply higher and increased downside risks for the global economy.

Strong economic data from the United States and renewed speculation about inflationary pressures on the Federal Reserve have also reduced expectations for US interest rate cuts during the first half of this year.

Investors are now awaiting the US February jobs report later today, which the Federal Reserve closely monitors in determining the path of monetary policy.

Japanese finance minister

Japanese Finance Minister Satsuki Katayama said this week that financial officials are monitoring markets closely with a “strong sense of urgency.” When asked about the possibility of currency market intervention, she said Japan reached a mutual understanding with the United States last year.

Japanese interest rates

Data released this week in Tokyo showed Japan’s unemployment rate rose to 2.7% in January, above market expectations of 2.6%, after recording 2.6% in December.

Following this data, market pricing for a 25-basis-point rate hike by the Bank of Japan in March fell from 15% to 5%.

Pricing for a 25-basis-point rate increase in April also dropped from 40% to 25%.

In the latest Reuters poll, the Bank of Japan is expected to raise interest rates to 1% by September.

Analysts at Morgan Stanley and MUFG wrote in a joint research note that they had already viewed the probability of a rate hike in March or April as low, but with rising uncertainty stemming from developments in the Middle East, the Bank of Japan is likely to adopt a more cautious stance, further reducing the chances of a near-term rate hike.

Investors are now waiting for additional data on inflation, unemployment, and wages in Japan to reassess these expectations.