The dollar index traded above 99.5 on Monday, holding gains from the previous session as rising tensions in the Middle East boosted safe-haven demand for the currency. The US-Israel war with Iran entered its fourth week with no sign of easing, with President Donald Trump threatening strikes on Iranian power plants if the Strait of Hormuz is not reopened, while Tehran warned it would target key US and Israeli assets across the region if its energy facilities were hit. Elevated oil prices continued to fuel inflation fears and lowered the likelihood of a near-term Federal Reserve rate cut, with some traders now pricing in a potential rate hike toward year-end. Last week, the Fed kept its policy rate unchanged as expected, with Chair Jerome Powell noting it was too soon to assess the full economic impact of the Iran conflict. The ECB, BOE and BOJ also held rates steady but signaled readiness to tighten policy further if inflationary pressures persist.
