Dollar slips, halting two days of gains, but safe-have demand remains high

The U.S. dollar inched lower on Wednesday, halting two days of hefty gains, after some strong economic data offset an ongoing hit to sentiment from the escalating conflict in the Middle East. Still, safe-haven demand remained high and the greenback hovered near six-week highs. 

At 13:40 ET (18:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% to 98.89.

Dollar remains near highest level since Jan 

The conflict in the Middle East, triggered by coordinated U.S. and Israeli strikes on Iran over the weekend and followed by Iranian retaliation, has threatened key energy flows through the Strait of Hormuz, stoking fears of prolonged supply disruptions.

Crude prices have rallied sharply on these risks, sparking fears of a surge in inflation globally. That in turn has led to worries that central banks across the globe will be unable to lower interest rates.

"In addition to market participants, it is central bankers, who are now increasingly eyeing the return of inflation as a concern," Thierry Wizman, global FX & rates strategist at Macquarie, said.

"The prospect that the Fed may be ’on hold’ instead of cutting rates this year may be why the USD has gotten an extra fillip of appreciation (beyond the haven-seeking impulse) during the War," he said. 

"Which currencies have done the poorest vs. the USD since the War began? It has been, unsurprisingly, the currencies of the oil importers, because that’s where the terms of trade shock associated with higher oil prices is likeliest to hurt real incomes the most. In the developed markets, that has been the EUR, DKK, SEK, and NZD," Wizman added.

In a positive sign for the monetary policy watchers, Wednesday’s economic calendar showed some solid data. U.S. private payrolls jumped by 63k in February, according to ADP’s latest monthly release, the highest since July 2025. Separately, ISM’s key gauge of services growth in February increased to its highest level in three and a half years amid improving demand and steady conditions. 

The Fed’s Beige Book will arrive later in the afternoon. 

Euro bounces off lows

In Europe, EUR/USD traded 0.1% higher to 1.1625, after earlier hitting its weakest since late November. 

That followed data released on Tuesday which showed Eurozone inflation at a higher than expected level in February before the start of the Iran conflict.

“The duration of this energy shock will determine whether EUR/USD needs to trade down to 1.10/12 or can find support near 1.15,” analysts at ING said in a note. “Our base case is the latter, in which we would expect operational intensity to decrease over the next week and the Straits of Hormuz to slowly reopen.”