Forex Today: US Dollar stalls as Middle East tensions linger

The US dollar paused its recent advance as escalating tensions in the Middle East prompted a cautious shift in investor sentiment, with demand for safe-haven assets showing limited follow-through. Geopolitical risk has historically influenced currency flows through risk-off impulses, but the current standoff has yet to trigger broad-based dollar or yen outperformance, suggesting markets are discounting immediate spillovers into global growth or oil supply. Instead, the dollar’s range-bound action reflects competing forces: elevated US yields supporting its appeal versus risk aversion that could dampen capital flows to high-beta emerging market currencies in the region. Traders are now focused on Friday’s US CPI print, which could re-anchor rate expectations and clarify the Federal Reserve’s stance amid shifting risk dynamics. Any surprise in inflation data may prompt rapid repricing in dollar crosses, particularly in pairs linked to commodity and Middle Eastern-exposed currencies.

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