Dollar at One-Week High After US Resumes Attacks on Iran

The dollar hit a one-week high on Monday after the United States resumed military strikes on Iranian targets in the Strait of Hormuz. The move pushed the dollar index to its strongest level since last Tuesday, with traders citing safe-haven flows as the primary driver.

Oil prices jumped on the news. Brent crude rose above $82 a barrel in early London trading, its highest in two weeks, after Iran struck two commercial vessels near the strait. The Pentagon confirmed the attacks and said it had launched a reprisal strike on an Iranian naval base. The escalation follows a month of tit-for-tat strikes that have repeatedly disrupted tanker traffic through the waterway, through which roughly a fifth of global oil supply passes.

The dollar's gains were broad. The euro fell below $1.0850, testing the lower end of its recent range. Sterling slipped to $1.2650. The Japanese yen, typically a safe haven, weakened against the dollar as the yield on 10-year US Treasuries rose 6 basis points to 4.38%. The move reflected a widening rate differential rather than a risk-off bid for the yen, traders said.

Emerging-market currencies bore the brunt of the risk aversion. The Indian rupee touched a fresh low of 83.75 against the dollar, a level not seen since late March. Higher oil prices pressure India's import bill, and the Reserve Bank of India is expected to intervene through sell-buy swaps to drain rupee liquidity without touching interest rates, a pattern it has used repeatedly this year.

For equity markets, the fallout was mixed. European indices opened lower, with the Stoxx 600 down 0.6%. US futures pointed to a flat open, suggesting that the initial jolt may fade if the strikes do not trigger a broader conflict. The S&P 500 has held above its 50-day moving average, and traders said the reaction may depend on whether oil prices stay elevated through the week.

In India, the Nifty 50 fell 0.4% in early trade, led by IT stocks. HDFC Bank, Infosys, and Wipro all dropped between 0.5% and 1.2%, tracking the broader risk-off mood. The rupee's weakness adds to the headwinds for import-dependent sectors, though the central bank's intervention tends to cap the downside.

The next catalyst is the weekly US crude inventory report due Wednesday. A large drawdown would reinforce the oil-price spike and keep the dollar bid. The other focus is Friday's US nonfarm payrolls print, which will test whether the dollar's safe-haven status can coexist with a dovish Fed narrative. The payrolls report is the next scheduled data point that could shift the macro picture.