The US dollar traded close to a one-week high on Thursday, 28 May, after fresh geopolitical tensions in the Middle East strengthened demand for safe-haven assets. 

The United States launched new strikes on an Iranian military site, adding uncertainty to ongoing negotiations between Washington and Tehran. The development reduced hopes for a quick diplomatic breakthrough and pushed investors toward the dollar amid concerns over rising inflation and energy prices.

Earlier, on Wednesday, US President Donald Trump stated that he was “not satisfied” with the progress of talks involving Iran. He also rejected reports suggesting that Iran and Oman could jointly oversee shipping operations through the Strait of Hormuz under a possible peace arrangement. 

The renewed tensions triggered a rebound in crude oil prices, while market participants increasingly expected the US Federal Reserve to maintain a hawkish stance if inflationary pressures remain elevated.

Alex Saunders, Citi’s Head of Global Quant Macro Strategy, noted that geopolitical risks and inflation concerns continue to support the US dollar. The euro slipped slightly to $1.1620, while the British pound eased 0.1% to $1.34176. Commodity-linked currencies also weakened, with the Australian dollar declining 0.2% to $0.71305 and the New Zealand dollar remaining largely unchanged at $0.58965.

Meanwhile, the dollar index hovered near 99.288, its strongest level since May 22, as investors awaited the release of the Federal Reserve’s preferred inflation indicator, the core PCE deflator. The data is expected to play a crucial role in shaping future US interest rate expectations.

In Asia, the Japanese yen weakened to 159.60 per dollar, nearing the 160 mark that prompted intervention by Japanese authorities last month. Analysts believe markets are now closely watching whether the Bank of Japan will raise interest rates during its June 15–16 policy meeting, with traders currently pricing in a 70% probability of a quarter-point hike.

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