The Israeli air strikes triggered a market flight to safety, causing the US dollar to rebound strongly. Crude oil and gold surged.

On Friday, driven by safe-haven buying, the US dollar saw a strong rebound after hovering near a three-year low the day before. The market witnessed intense volatility due to Israel's airstrikes on Iran, escalating geopolitical tensions prompting investors to flock to safe-haven assets including the US dollar. The airstrikes represented a significant escalation in the Middle East situation, catching the market off guard. The US dollar index rose by 0.3% to 98.19 at the time of writing. Israeli Prime Minister Netanyahu announced that his government had carried out "targeted military operations" against Iran's nuclear program and ballistic missile facilities. In response, Iran stated that they had launched over 100 drones at Israel. Netanyahu emphasized, "As long as the threat exists, this military operation will continue." US Secretary of State Pompeo later stated that the US had not participated in strikes against Iran; the action was described as Israel's "unilateral action." He reiterated, "Our primary task at the moment is to ensure the safety of US forces in the region." Iran later confirmed launching ballistic missiles at Israel, with the Iranian state news agency describing it as the "beginning of a strong retaliatory action," which was also corroborated by the Israeli Defense Forces. This geopolitical crisis highlighted the US dollar's safe-haven appeal once again. The dollar rose against traditional safe-haven currencies like the Swiss Franc and the Japanese Yen by 0.1% and 0.4% respectively. In times of escalating global uncertainty, investors tend to sell riskier assets and turn to assets perceived as "safe havens" to avoid market volatility risks. Currency strategists at ING noted that the Israeli attack acted as a "catalyst for an oversold and undervalued US dollar rebound." However, they also pointed out that under normal circumstances, the US dollar should have rebounded more significantly due to the "negative impact on stocks and bonds markets." But the current traditional correlation of the dollar has disappeared, and a drop of over 1% in the S&P 500 is possibly limiting the dollar's rise. ING strategists mentioned that investors would focus on the depth and duration of the Middle East conflict and its potential impact on oil prices. They stated, "Unlike recent Middle East tensions, the risk is now more clearly pointing to a longer period of tension, which we believe could continue to alleviate downward pressure on the US dollar." Just before the airstrikes, the US dollar seemed to be in a weak position as a result of policy uncertainties caused by the Trump administration and market expectations of a Federal Reserve interest rate cut, leading to continuous pressure on the dollar. On Thursday, the US dollar index fell to its lowest level since the end of March 2022. It's worth noting that the market is generally bearish on the US dollar currently. A survey released by Bank of America showed that betting against the US dollar remains one of the most "crowded" trades in the market, but most investors remain confident in this operation. Although geopolitical tensions drove safe-haven funds back to the US dollar, LPL Financial's Chief Technical Strategist Adam Turnquist pointed out in an interview that this was not the only reason for the US dollar rebound. He stated, "The surge in oil prices has exacerbated the risk of upward inflation, cooling market expectations for a Fed rate cut this year, further boosting demand for the dollar." Apart from the US dollar, gold and oil have also become focal points in the market. As a classic safe-haven asset, gold prices rose to nearly a two-month high due to the news of Israeli airstrikes. On Friday, spot gold rose by 1.43% to $3434.47. Strategists at Deutsche Bank noted in a report, "The attack has sparked significant concerns in the market about the escalation of the situation and the spread of regional conflict, affecting multiple global asset classes and significantly reducing risk appetite." By Friday morning London time, the initial market reaction had somewhat stabilized. Economists at Rabobank stated that the overall response was "relatively restrained." US bond prices initially rose, leading to a decline in yields, but by the afternoon, yields on 30-year, 10-year, and 2-year US bonds had rebounded. Meanwhile, European stock markets generally fell, and US stock futures also weakened simultaneously. The most dramatic market reaction was seen in oil prices. Concerns arose that Iran might take further retaliatory action, disrupting global oil supplies. The news of the airstrikes led to a 13% spike in oil futures, although they later fell, the increase still remained high. US WTI crude oil prices rose by 7.55% to $73.18 per barrel; global benchmark Brent crude oil rose by 7.5% to $74.56 per barrel.