Dollar Strengthens as Middle East Tensions Cap Risk Appetite

The U.S. dollar edged higher against the euro on Monday as ongoing conflict in the Middle East kept investors risk-averse. The dollar index rose 0.2% to 98.404, supported by uncertainty over a potential resolution to the crisis. Markets were rattled after Iran claimed a missile struck a U.S. warship near the Gulf of Oman, a report denied by U.S. Central Command.

"As long as the blockade remains, the dollar will stay steady," said Juan Perez of Monex USA. "But any peace deal would immediately hurt the dollar."

The euro slipped 0.2% to $1.1694 after German Chancellor Friedrich Merz downplayed tensions with Trump over U.S. troop reductions and planned auto tariffs.

The yen saw volatility, briefly surging 0.75% to 155.69, raising expectations of Japanese intervention. BBVA's Roberto Cobo Garcia noted that Tokyo is likely to defend the 160 level.

The pound fell 0.3% as UK markets were closed. The Australian dollar dropped 0.4% ahead of a likely RBA rate hike.