The US dollar has found a new lease of life this week, with the DXY climbing back to the 99 level as the US-Iran conflict escalated. Geopolitical tension has once again acted as a powerful magnet for safe-haven flows into the world’s reserve currency, while inflation fears have provided additional fuel.

Oil prices were the immediate catalyst, with markets now questioning whether the anticipated mid-year rate cuts remain realistic. A delayed or shallower easing cycle would keep real yields elevated, providing additional support for the USD. The risk of supply disruptions through the Strait of Hormuz, whilst rattling risk assets, has been of benefit to the Dollar now that there are serious questions over how dovish the Fed could afford to be if inflation makes a swift move higher in response to the Middle East conflict.

The spike in crude has reignited concerns about energy costs feeding through to transportation, manufacturing and consumer prices — the very areas that have kept core inflation stubborn. With oil shipments through the Strait of Hormuz accounting for approximately 20% of global crude supply, and with China being Iran’s major export market, oil shortage concerns and economic growth impacts have dealt risk assets a blow.

Trump’s offer of US naval support for shipments through the Strait and insurance support knocked crude prices off from their overnight highs but with Middle East energy infrastructure being targeted, the upside bias in oil prices is expected to remain in the absence of any de-escalation of the conflict.

Gold has had a frustrating week, caught in a tug-of-war between resurgent safe-haven demand and a stubborn US dollar that refuses to give ground. As Middle East tensions escalated—with fresh US-Iran naval incidents in the Gulf and warnings around the Strait of Hormuz—investors once again turned to gold as the classic hedge against geopolitical risk. The Dollar’s surge has curtailed gold’s advance, with the precious metal being hindered by the now-murky US interest rate outlook.

But with the conflict raging on, and traders left with as-yet unanswered questions about the scope and duration of the conflict, gold should be able to keep finding buyers in search of a defensive-play asset. Bargain hunters have stepped in for gold today following its price slide overnight with prices now once again tracking north. Levels to watch include support at $4975, with resistance around $5350.

Stocks have turned lower this week as the escalating US-Iran conflict injected a fresh dose of geopolitical risk into an already cautious market. Equities, particularly growth-oriented names in tech and consumer discretionary, bore the brunt as investors rotated toward safe havens like the US dollar. Risk appetite has evaporated as headlines from the Gulf overshadowed solid earnings. The threat of supply disruptions through the Strait of Hormuz has been enough to tilt sentiment defensive. Markets hate uncertainty, and this conflict is delivering it in spades.

Looking ahead, we have US Non-Farm Payrolls (NFP) data due on Friday, which ordinarily would be the highlight event for markets, but it may play a backseat role to the conflict raging in the Middle East. Having said that, if we got another upside surprise of more than 100k this could further raise doubts about the Fed’s ability to cut rates. And a particularly poor reading could exacerbate growth and stagflation fears, with traders already on edge. Consensus expectations are for an NFP figure of +60k for February when it gets released on Friday. However, headlines from the war will be the biggest determinant for risk assets, with any deescalation likely to lead to a rebound, while any escalation or broadening of the conflict likely to create further market tumult.