The US Dollar Index (DXY) surged to near 99.40-99.35 during Asian trading hours on Friday, rebounding after a sharp sell-off on Thursday. This move follows the US Federal Reserve's decision to keep interest rates unchanged in the 3.5%-3.75% range at the end of its two-day policy meeting, with the Summary of Economic Projections maintaining a median forecast for one rate cut in 2026 [1][3]. Fed Chair Jerome Powell highlighted ongoing uncertainty due to the oil shock and noted that progress on inflation has not met expectations [1]. According to the CME FedWatch tool, the Fed is unlikely to cut interest rates during the year [2].
Geopolitical tensions in the Middle East, specifically the US-Israeli conflict with Iran, have intensified, with Iranian and Saudi officials warning of potential military escalation. These developments are supporting safe-haven demand for the US Dollar, as noted by currency strategist Carol Kong, who stated, "The longer the war drags on, the higher the U.S. dollar will go, because it will benefit from safe-haven demand arising from higher uncertainty (and) also from the U.S. being an energy exporter" [1].
The USD/JPY pair rose 0.4% to near 158.33, recovering after Thursday's sell-off, as the Japanese Yen underperformed despite the Bank of Japan (BoJ) retaining its hawkish stance and leaving interest rates unchanged at 0.75%. BoJ Governor Kazuo Ueda indicated a rate hike is possible if the Middle East conflict-linked economic downturn is short-lived, but BoJ officials warned of uncertainty due to surging energy prices [2]. Technical analysis shows USD/JPY maintains a bullish trend, with immediate resistance at 159.00 and support at the 20-day EMA around 157.50 [2].
EUR/USD corrected to near 1.1560, down 0.2% from the weekly high, as the US Dollar gained ground. The European Central Bank (ECB) left interest rates unchanged, citing uncertainty from the US-Israeli military action against Iran and rising energy prices. ECB President Christine Lagarde warned that energy price increases will drive inflation above 2% in the near term. A Reuters report suggested the ECB could discuss hiking rates in April or June if energy prices remain elevated, which previously led to a sharp upside move in the Euro [3].
Across major currencies, the US Dollar was strongest against the Japanese Yen, up 0.38%, and also gained against the Euro (+0.24%) and British Pound (+0.17%) [3].
CONCLUSION
The US Dollar has strengthened significantly following the Fed's hawkish hold and escalating Middle East tensions, with safe-haven flows supporting its rally. Both the Yen and Euro have come under pressure, despite hawkish signals from the BoJ and ECB, as uncertainty over energy prices and geopolitical risks dominate market sentiment. The outlook remains bullish for the US Dollar, with central banks signaling caution and limited policy divergence in the near term.