The U.S. dollar surged to a five-week high Monday as escalating Middle East conflict drove investors toward safe-haven assets. The Dollar Index climbed 0.6% to 98.187, its strongest level since late January, following U.S. and Israeli strikes on Iran that killed Supreme Leader Ali Khamenei.

The conflict intensified over the weekend with retaliatory attacks across Israel, UAE, Qatar, Bahrain, and Kuwait. President Trump warned strikes would continue "for as long as necessary," raising concerns about prolonged instability. Analysts at ING identified three channels driving dollar strength: U.S. energy independence, potential Fed policy shifts, and reduced emerging market portfolio flows.

Euro and sterling retreated 0.6% and 0.8% respectively as higher energy prices threatened European economic recovery. The Swiss franc soared to its strongest level in over a decade against the euro, while the yen dropped 0.7% amid rising crude prices. The conflict's energy price impact is forcing investors to reassess regional growth prospects, with ING warning EUR/USD could fall to 1.1575-1.1600 without early de-escalation.