March 26, 2026 — The US dollar rose against a basket of major currencies on Thursday, bolstered by escalating geopolitical tensions in the Middle East and data pointing to persistent strength in the American labor market.
Geopolitical and Economic Drivers
The dollar index (DXY) climbed 0.35%. Market analysts cited a report from Axios stating the Pentagon is developing extensive military options for a potential “final blow” in Iran. According to the report, these options could involve ground forces and a major bombing campaign if diplomatic talks fail and the Strait of Hormuz remains closed past a weekend deadline set by the White House.
This uncertainty weighed on stock markets and boosted demand for the dollar as a traditional safe-haven asset. Concurrently, a 4% surge in crude oil prices raised broader inflation expectations, supporting the view that the Federal Reserve may maintain a restrictive monetary policy stance.
Support from Labor Market Data
Domestic economic data also underpinned the currency. The US Labor Department reported that weekly initial jobless claims rose by 5,000 to 210,000, matching expectations. More significantly, continuing claims fell by 32,000 to 1.819 million, hitting a 1.75-year low and signaling a tighter labor market than anticipated.
Separately, the Kansas City Fed’s manufacturing activity survey for March unexpectedly jumped to an 11 reading, a 3.5-year high. This combination of data reinforced a hawkish outlook for Fed policy. Swaps markets, however, were still pricing in only a 6% chance of a rate hike at the Fed’s late April meeting.
Euro and Yen Under Pressure
The euro fell 0.29% against the dollar. The single currency faced headwinds from the stronger greenback and a report showing German consumer confidence slumped to a two-year low in April. Higher oil prices also threatened the energy-importing Eurozone economy.
The Japanese yen declined 0.21%. It was pressured by the firmer dollar and rising US Treasury yields. Losses were tempered slightly by data showing Japan’s February services producer price index rose more than expected, a factor that could influence Bank of Japan policy.
Precious Metals Plunge
Gold and silver prices fell sharply, moving inversely to the dollar. April COMEX gold futures closed down 3.87%, while May silver futures dropped 6.48%. The stronger dollar and higher global bond yields reduced the appeal of non-yielding assets.
Precious metals also faced selling pressure from the Central Bank of the Republic of Turkey (CBRT). Official data showed the bank sold 6 metric tons of gold from its reserves in the week of March 13 and another 52.4 metric tons in the week ended March 20. The sales, worth over $8 billion, were reportedly used in swap agreements to support the Turkish lira.
Despite the sell-off, analysts noted that safe-haven demand for gold persists due to the ongoing Middle East conflict, now in its 26th day, and broader macroeconomic uncertainties.
Broader Market Context
The dollar’s longer-term trajectory remains influenced by interest rate differentials. The Federal Open Market Committee is still widely expected to cut rates later in 2026, while the European Central Bank and Bank of Japan are projected to raise theirs.
The Organization for Economic Cooperation and Development (OECD) recently raised its 2026 inflation forecast for G-20 nations to 4.0%, up from a December estimate of 2.8%, citing the economic impact of the war in Iran.
What’s Next: Trader focus will remain fixed on developments in the Strait of Hormuz and the weekend diplomatic deadline. Further escalation would likely continue to fuel dollar strength and volatility across equity and commodity markets. Upcoming US inflation data will also be scrutinized for its implications on the Fed’s policy path.
This article was produced with AI assistance and reviewed by our editorial team for accuracy and quality.
