The US Dollar Index (DXY) remained under pressure near the 99.00 level during Asian trading hours on Friday, March 6, trimming gains from the previous session. Despite lingering safe-haven demand triggered by escalating geopolitical tensions, the Greenback struggled to maintain upward momentum.

The conflict between Iran and Israel has intensified in recent days, increasing volatility across global markets. Investors often turn to the US Dollar during periods of uncertainty, but concerns over inflation and monetary policy shifts have tempered the currency’s recovery.

Iran–Israel Conflict Pushes Oil Higher

The war entered its seventh day with significant military escalation. Iran reportedly launched missiles and drones across the Gulf on Thursday, hitting an oil refinery in Bahrain. Meanwhile, Israel continued airstrikes targeting Tehran, intensifying fears of a broader regional conflict.

The United States also suspended operations at its embassy in Kuwait City, reflecting rising security concerns in the region.

The geopolitical tensions have driven oil prices higher, raising global inflation risks. Elevated energy costs could complicate monetary policy decisions for the Federal Reserve, particularly as policymakers attempt to bring inflation back toward their 2% target.

Rate Cut Expectations Fade as Inflation Risks Rise

Rising oil prices linked to the conflict are reducing market expectations for near-term interest rate cuts. Instead, policymakers are increasingly discussing the possibility of maintaining higher interest rates for longer or even considering additional tightening if inflation remains stubborn.

Donald Trump, President of the United States, stated that Iranian officials had attempted to reach out to negotiate an end to the war. However, he said it was already too late and that Washington was continuing its push to dismantle Iran’s military capabilities.

At the same time, Austan Goolsbee, President of the Federal Reserve Bank of Chicago, warned that institutions are currently facing a growing crisis of public trust. He emphasized that the Federal Reserve’s decentralized structure has historically functioned effectively and that maintaining central bank independence is crucial for controlling inflation.

Markets Await Key US Economic Data

Traders are now focusing on upcoming economic releases that could shape expectations for US monetary policy.

The market is closely watching the US Nonfarm Payrolls report for February, with economists forecasting around 59,000 new jobs following January’s stronger-than-expected 130,000 increase.

Meanwhile, US Retail Sales are projected to decline 0.3% month-over-month in January after remaining flat in the previous report.

These data points will be critical for investors assessing the health of the US economy and determining whether the US Dollar Index can stabilize or extend its recent losses in the coming sessions.