The U.S. dollar weakened against major currencies Thursday as central banks warned of an inflationary shock stemming from the intensifying Middle East conflict. The currency's decline comes after a period of strength driven by oil price volatility and safe-haven flows. Traders are now reassessing positions as geopolitical tensions threaten to drive up energy costs globally.

Central banks' hawkish stance on inflation risks has rattled markets, with investors concerned that rising oil prices could derail economic growth. The conflict's escalation has pushed crude benchmarks higher, adding pressure on central banks already grappling with stubborn inflation. This dynamic has prompted a shift away from the dollar, which had been benefiting from its safe-haven status.

The dollar's retreat reflects growing uncertainty about the global economic outlook. As central banks signal potential policy tightening to combat inflation, markets are weighing the impact of higher energy prices on consumer spending and corporate profits. The currency's weakness could provide relief for U.S. exporters but may also signal broader concerns about economic resilience in the face of geopolitical shocks.