US dollar maintains resilience against other currencies amid Middle East war in H1

The US Dollar Index closed the first half of the year up around 3% at 101.2, and maintained its strong performance in the first week of the second half, as geopolitical risks, the appointment of new Fed Chair Kevin Warsh, and regional tensions reinforced the US dollar’s safe-haven status.

The US Dollar Index started the year at 98.2 and rose to 101.8 on June 24, its highest since May 2025. The index remained around the 100 threshold, reflecting volatility stemming from Middle East tensions.

Following US President Donald Trump’s tariff measures and the outbreak of Middle East tensions in late February, the US Dollar Index maintained a strong position around the 100 level during the first six months of the year, as the greenback gained value against major currencies including the euro, the Swiss franc, the Japanese yen, the British pound, and more.

The US Dollar Index closed last week at 100.9, up 0.1%, starting the second half of the year on a positive note.

Expectations that the Fed would maintain a hawkish stance for an extended period drove the dollar’s rise.

The US dollar/Japanese yen exchange rate tested its 40-year high at 161.95 on June 29, its highest level since July 1986.

The Middle East conflict, which began on Feb. 28 with joint US and Israeli strikes on Iran followed by Tehran’s retaliation, has reshaped the global economic outlook.

The war’s most significant impact was on oil shipments through the Strait of Hormuz, a critical artery for global energy supply distribution.

Regional tensions and rising oil prices due to supply concerns fueled inflation risks across the globe, prompting markets to shift from expectations of dovish monetary policy before the war to expectations of a more hawkish stance.

Markets expect the US Federal Reserve to hike rates by the end of the year, while a potential rate hike next year is also priced into money market estimates.

The Fed maintained its policy rate at the 3.5-3.75% range, in line with market estimates, at its meetings in January, March, April, and June.

Fed Chair Kevin Warsh began his new role in June and emphasized price stability, saying the 2% inflation target will be maintained until the bank’s resolve and capacity to meet the target is reestablished.

The European Central Bank is expected to maintain a hawkish stance throughout the year amid cost pressures due to intensifying energy supply shortages in the region, which are adding to downside risks for the euro against the dollar.

The euro/US dollar exchange rate fell to 1.13 on June 24, its lowest since May 2025, and closed the first half at 1.1422.

The ECB is widely expected to hike rates once by year-end and the possibility of a second rate hike remains.