Dollar Solidifies Amid Middle East Turmoil, Investors Seek Safe Assets

The dollar maintained its sharpest gains in a week after an Iranian missile attack on Israel drove investors to seek safe assets. Tensions in the Middle East have caused fluctuations in major currencies, oil prices, and investor sentiment, with further movements anticipated based on geopolitical developments.

The dollar held onto its sharpest gains in a week on Wednesday following an Iranian missile attack on Israel that prompted investors to seek safe assets amidst growing concerns of conflict in the Middle East. Asian currencies showed minor movements, attempting to recover from sharp declines in the previous session.

The euro fell 0.06% to $1.1060, after experiencing its largest drop in nearly four months on Tuesday. The Australian and New Zealand dollars saw early gains erased, trading 0.06% and 0.25% higher respectively at $0.6887 and $0.6296. However, the kiwi faced additional pressure due to market bets on aggressive easing from the Reserve Bank of New Zealand, with an 87% chance of a 50-basis-point cut anticipated.

Iran claimed its missile attack on Israel, the most extensive military assault on the nation, was completed barring further provocations, while Israel and the U.S. vowed to retaliate, heightening fears of a broader war. Financial markets reacted mainly to oil price fluctuations, with ANZ analysts noting that further moves would hinge on Israel's response and potential attacks on Iran's military or oil sectors.

Elsewhere, the Swiss franc remained steady at 0.8460 per dollar, while sterling fell 0.11% to $1.3272 and the U.S. dollar rose slightly to 101.27 against a basket of currencies. The dollar index rose about 0.5% in the previous session, supported by a stronger-than-expected U.S. job openings report. Westpac strategist Imre Speizer commented that market sentiment could recover and refocus on economics if Middle East tensions did not escalate further.

In Japan, the yen weakened slightly to 143.78 per dollar, with Economy Minister Ryosei Akazawa stating that Prime Minister Shigeru Ishiba expects the Bank of Japan to consider economic conditions carefully before raising interest rates again. U.S. private payrolls data and an ongoing labor dispute at East and Gulf Coast ports, which halted about half of the nation's ocean shipping, were also in focus for market watchers.

In a debate on Tuesday, U.S. Senator JD Vance, picked by Donald Trump as his vice presidential candidate, faced off against Minnesota Governor Tim Walz, chosen by Kamala Harris as her running mate, with the event generating a muted market response.

(With inputs from agencies.)