Dollar index jumps 0.5% in biggest daily gain since April

The Bloomberg Dollar Index surged 0.5% on Thursday, its largest intraday gain in two months, as escalating conflict in the Middle East pushed investors into the greenback and out of risk assets.

"The dollar bid reflects a broad risk-off repricing as markets price in a prolonged period of elevated geopolitical uncertainty," said Dean Chen, analyst at Bitunix. "Higher energy costs combined with a stronger dollar create tightening financial conditions that compound pressure on risk assets."

The move pushed the Bloomberg Dollar Index to its highest level since early April. The greenback's rally weighed on commodities priced in dollars, with West Texas Intermediate crude falling nearly 3% to $93.20 a barrel and Brent settling 2.8% lower at $95.03. Gold futures advanced 0.9% to above $4,500 an ounce as investors sought haven assets. The 10-year Treasury yield edged lower to below 4.48%, while the S&P 500 added 0.4% to close at 7,609.78.

The dollar's rally tightens financial conditions at a time when the Federal Reserve is already grappling with sticky inflation fueled by higher energy costs. The Fed's Beige Book, released Wednesday, highlighted that businesses across the country are passing through higher transportation costs to consumers, complicating the central bank's path on interest rates. With the May jobs report due Friday — economists expect 80,000 positions added, down from 115,000 in April — a stronger dollar could further weigh on export competitiveness and multinational earnings.

Oil Retreats as Ceasefire Hopes Offset Supply Fears

Despite the dollar's strength, oil prices fell after Israel and Lebanon announced they would renew their ceasefire agreement. President Donald Trump told aides he would not resume an all-out war with Iran unless American troops were killed, the Wall Street Journal reported, easing some of the supply premium built into crude prices. West Texas Intermediate futures pulled back nearly 3% to $93.20 a barrel, while Brent crude settled 2.8% lower at $95.03.

The dollar's ascent also hit cryptocurrencies, with Bitcoin sliding to around $63,300, its lowest level since February and down from overnight highs near $67,800. Crypto derivatives markets suffered the largest liquidation event since October, according to Fundstrat, as leveraged bets were wiped out. Spot Bitcoin funds have seen outflows for 13 consecutive trading days, pushing year-to-date net flows into negative territory, per Farside Investors data.

Dollar Strength Complicates Fed's Inflation Fight

The rally adds a new layer of complexity for the Federal Reserve, which has been monitoring the impact of the Iran conflict on inflation. The Beige Book published Wednesday was filled with complaints from the Fed's business contacts about higher fuel costs and their ripple effects. Fed officials have warned they may have to raise the benchmark interest rate to quash inflation if price pressures persist.

The last time the Bloomberg Dollar Index posted a comparable single-day gain was in early April, when stronger-than-expected U.S. economic data prompted a repricing of rate-cut expectations. That rally preceded a period of weakness in emerging-market currencies and a pullback in commodities. If the dollar sustains its current trajectory, history suggests similar pressure could build on EM assets and dollar-denominated debt.

This article is for informational purposes only and does not constitute investment advice.