The escalation of the situation in the Middle East has triggered safe-haven demand, causing the US dollar index to sharply rise, potentially achieving its best weekly performance in over a year.

Against the backdrop of escalating tensions in the Middle East driving demand for safe havens, the US dollar is poised to record its best performance in over a year this week. Investors are currently turning their focus to the US employment report to be released on Friday to determine if the dollar's momentum can continue. Data shows that the US dollar index has risen by about 1.4% this week. If this gain can be sustained, it will be the best week for this index since November 2024. Previously, due to Washington's policy uncertainty and market expectations of a Fed rate cut this year, the overall trend of the dollar was weak, but the rise this week has partially reversed this trend. One of the important factors driving the strength of the US dollar is the significant increase in oil prices. Since the US launched a military strike against Iran on February 28, the price of US benchmark crude oil West Texas Intermediate (WTI) has risen by over 17%, reigniting inflation concerns related to rising energy prices and weakening market expectations of a Fed rate cut, thus boosting the US dollar. Although there has been a significant rebound this week, the US dollar index has remained relatively flat overall so far this year, but it has dropped by about 8% compared to the level when President Trump took office last year. Ahead of the release of the non-farm payroll report on Friday, traders in the options market have the most bullish sentiment towards the US dollar since June 2024. Market participants believe that if the job data shows strength, it will further enhance investor confidence in the US dollar. Goldman Sachs' strategy team stated in a report that although the market is currently focused on the situation in the Middle East and energy prices, US labor market data will still be an important factor in determining exchange rate performance. According to a survey of economists by the media, it is expected that the number of non-farm jobs in the US in February will increase by 55,000, significantly lower than the 130,000 in January. Foreign exchange market participants point out that if the data exceeds expectations, it could trigger a new round of US dollar buying as investors reassess the Fed's policy path. Karl Schamotta, Chief Market Strategist at Corpay, stated that strong job data will strengthen the current market trend of a repriced hawkish Fed and extend the recent bullish trend of the US dollar. Among major currencies, the Japanese yen, euro, and pound are most likely to face renewed selling pressure. However, some analysts point out that even if job data falls below expectations, it may not necessarily be enough to prompt the Fed to cut rates quickly. Jayati Bharadwaj, FX strategist at TD Securities, stated that only in the case of extremely weak non-farm payroll data accompanied by a significant rise in the unemployment rate, the market may reconsider the rate cut prospects for this year, as the current focus remains on the Middle East conflict and inflation risks. Meanwhile, the economic prospects of Europe are under pressure due to energy risks. The rise in energy prices triggered by the Middle East conflict once again highlights Europe's dependence on energy supply from the Middle East, raising concerns about the risk of "stagflation" emerging. The euro against the US dollar has fallen by about 1.7% this week, trading at around $1.1605. Davide Oneglia, economist at TS Lombard, pointed out that if shipping through the Strait of Hormuz is disrupted due to conflict, it will further strengthen the stagflation pressure faced by the European economy, with the impact of reduced energy supply and price increases potentially causing a decline of up to 0.9% in Europe's GDP.