Dollar Index consolidates near record highs as Middle East tensions spike crude prices. The conflict, sparked by U.S.-Israeli strikes on Iran and Iranian retaliation, threatens key energy flows through the Strait of Hormuz, driving oil costs higher and boosting demand for the greenback as a safe-haven asset. At 04:55 ET, the Dollar Index traded marginally lower to 98.995 but remains near its strongest level since November 28. ING analysts note investors are unlikely to chase it through the 100.00/100.35 resistance, requiring clearer energy market improvements before short-dollar positions are considered.

Market implications hinge on whether energy prices can reverse lower if the Strait reopens and central banks, particularly the Fed, can avoid tightening policy. Upcoming economic data, including February readings and the Fed's policy stance ahead of its March meeting, will be critical. ING warns sticky inflation could reduce expectations for two Fed rate cuts this year. In Europe, EUR/USD bounced off lows to 1.1616, supported by ING's base case of the Strait reopening slowly, while GBP/USD and USD/JPY also showed resilience despite broader risk-off sentiment.

Asian currencies weakened, with USD/JPY near five-week highs and USD/CNY gaining for a fourth day, reflecting divergent Chinese economic signals. The Dollar Index's consolidation underscores how geopolitical risks are reshaping currency dynamics, with investors likely to remain cautious until the Middle East energy crisis stabilizes.