Iran doubts quickly reversed the market’s brief optimism
The dollar moved higher after fresh signs that a deal with Iran may not be as close as markets hoped.
The shift came after Iran’s Supreme Leader reportedly made clear that the country’s near-weapons-grade uranium must not be sent abroad, a stance that hardens Tehran’s negotiating position and raises new doubts about whether a near-term agreement can actually be reached.
That matters because only a day earlier, markets had started to lean into a more optimistic view after President Trump said negotiations were in their final stages. Thursday’s move showed how fragile that optimism really was.
The dollar is benefiting from a familiar wartime macro setup
The greenback is rising for two connected reasons.
First, a prolonged conflict threatens to keep oil and energy prices elevated, which would feed further into consumer inflation and inflation expectations.
Second, the more the conflict drags on, the more pressure it puts on economies that are heavily exposed to energy imports and weaker demand. That tends to favor the dollar because the US economy still looks relatively more resilient than many of its peers.
That is the core setup now. The market is not just buying the dollar as a safe haven. It is also buying it because the US still appears better positioned than Europe, the UK, and parts of Asia to absorb this environment.
Weak global PMIs gave the dollar more support
Thursday’s economic data added to that view.
Weak PMI readings from overseas reinforced the idea that global growth is already starting to feel the strain of the energy shock. Activity in the euro zone contracted at its sharpest pace in more than two and a half years, while businesses in the UK also showed a broader decline in activity. In Japan, manufacturing slowed and service-sector growth stalled.
That matters because the dollar tends to strengthen when global growth weakens faster outside the US than inside it.
In other words, this is not just a dollar rally driven by fear. It is also being supported by a widening growth gap.
The Fed can stay focused on inflation for longer
The latest US labor data helped reinforce that dynamic.
Jobless claims fell again, pointing to continued resilience in the American labor market. That gives the Federal Reserve more room to keep its attention on inflation rather than shifting quickly toward growth support.
That is important for currency markets. If investors believe the Fed may need to stay tighter for longer, or even keep the door open to further hikes, that usually supports the dollar.
The market is increasingly starting to think that way again, especially if energy pressures keep spreading through the economy.
The euro, sterling, and yen are all under pressure for different reasons
The euro fell as investors digested worsening growth conditions in the euro area, even with the ECB still expected to keep tightening.
Sterling also weakened as UK business activity deteriorated more broadly.
The yen remains under pressure as well, with the dollar pushing it back toward the 160 level that previously triggered intervention from Japanese authorities. Even though some voices inside the Bank of Japan are sounding more hawkish, the currency is still struggling against a stronger dollar backdrop and unstable bond markets.
That leaves the greenback in a strong relative position across the major currency complex.
WSA Take
The dollar’s move higher makes sense in this environment. Iran deal doubts have revived the inflation story, elevated energy risk, and reinforced concerns that global growth is starting to roll over outside the US. That is exactly the kind of backdrop where the greenback tends to outperform.
The bigger takeaway is that this is no longer just a geopolitical headline trade. The market is now treating the war as a macro event with real implications for rates, growth, and relative currency performance. If the conflict drags on and the global data stays weak, the dollar may have more room to run.
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