US dollar holds firm as Middle East tensions support safe-haven demand

The US Dollar remained resilient against its major peers early Friday as investors continued to monitor developments in the Middle East and looked ahead to a fresh batch of US economic data.

Market participants are set to focus on the US economic calendar later in the day, which includes the June Export Price Index, Import Price Index, and Housing Starts data.

Investors will also watch the preliminary July Consumer Sentiment Index from the University of Michigan (UoM) for further clues on economic conditions.

Dollar recovers after two-day decline

The US Dollar regained momentum on Thursday after declining for two consecutive sessions.

The USD Index ended the day in positive territory, supported by stronger-than-expected Initial Jobless Claims data.

The stronger labor market data helped the greenback recover.

At the same time, increased risk aversion across global financial markets boosted demand for the US Dollar as a traditional safe-haven asset.

Early Friday, the USD Index held on to modest gains near the 100.80 level during the European session.

Middle East developments weigh on market sentiment

Investor sentiment remained cautious as geopolitical tensions continued to dominate market attention.

The United States carried out strikes for the sixth consecutive night, focusing on southern Iran.

According to Al Jazeera, officials in Bandar Abbas in southern Iran reported that civilian infrastructure, including power facilities and a train station, had been hit.

Separately, Reuters reported in an exclusive article published late Thursday that Iran had asked Yemen's Houthi militia to remain prepared to close the Red Sea oil route if US strikes targeted Iranian power infrastructure.

The report highlighted a potential new threat to global energy supplies, contributing to the cautious mood across financial markets.

The geopolitical uncertainty prompted investors to reduce exposure to riskier assets.

Reflecting this shift, US stock index futures were down between 0.8% and 1.5% during the European morning session, pointing to a broader flight to safety.

Major currency pairs remain under pressure

The stronger US Dollar weighed on several major currencies.

The euro struggled to recover after Thursday's decline, with the EUR/USD pair remaining below the 1.1450 mark during Friday's European trading session.

The British pound also stayed under pressure.

GBP/USD extended its losses and moved toward 1.3450 after falling nearly 0.5% in the previous session.

Meanwhile, USD/JPY traded within a narrow range below 162.50.

Japan's Finance Minister, Satsuki Katayama, reiterated on Friday that Japanese authorities stand ready to respond to currency movements whenever necessary.

Indian rupee edges higher

The Indian Rupee opened marginally stronger against the US Dollar as trading headed into the weekend.

The USD/INR pair slipped toward the 96.30 level as the Indian currency gained ground.

The move followed intervention by the Reserve Bank of India, which supported the rupee despite the broader strength seen in the US Dollar.

With geopolitical tensions continuing to shape investor sentiment, markets will closely monitor the upcoming US economic releases for additional direction.