Hedge funds drove the dollar higher as geopolitical risks in the Middle East intensified. Traders, anticipating prolonged volatility, piled into the reserve currency, pushing it to a three-week high against a basket of major currencies. The US and Iran exchanged sharp rhetoric over nuclear negotiations, escalating concerns about potential disruptions to global oil markets.

The dollar’s surge reflects bets that central banks may delay rate cuts amid persistent inflation and energy price shocks. Analysts note that geopolitical uncertainty often strengthens the greenback as investors seek safe-haven assets. However, the rally faces headwinds from mixed economic data, including Friday’s softer-than-expected US GDP figures.

While the Iran-US confrontation dominates headlines, markets remain fixated on potential spillover effects. Oil prices jumped 4% last week as traders priced in a higher likelihood of supply shocks. Meanwhile, the dollar’s momentum could influence emerging markets, where currency depreciation risks reigniting capital flight.

Traders are hedging against further escalation, with volatility indices hitting multi-year peaks. The situation underscores the dollar’s enduring role as a crisis currency, even as policymakers debate its long-term dominance. All eyes remain on Washington and Tehran to determine whether diplomacy can stabilize both markets and tensions.