The US dollar surged to a 13-month high on Friday as the Federal Reserve signalled further rate hikes and geopolitical tensions in the Middle East intensified, with investors seeking safe-haven assets amid reports that Israel targeted Lebanon and Iran withdrew from peace negotiations. The ICE dollar index climbed to its strongest level since May 2025, driven by hawkish Fed signals and renewed uncertainty over Middle East stability .

The rally underscores the dollar’s enduring role as the world’s primary reserve currency, even as Europe grapples with the economic fallout from the Iran war. Since the outbreak of hostilities and the intermittent closure of the Strait of Hormuz—where ship crossings have fallen by around 90% compared with pre-war levels—oil prices have nearly doubled from 2025 averages, pushing Eurozone inflation higher and straining consumer spending . The European Central Bank’s June 2026 macroeconomic projections, released this week, warn that inflationary pressures remain entrenched despite early signs of a fragile Iran peace deal .

European equity markets ended the week on a cautious note after the Iran peace process hit an early snag, with the Irish Times reporting that European shares slipped on Friday as investors weighed the risks of prolonged energy market disruption . The euro area’s trade balance also slipped into deficit in April 2026, recording a €1 billion shortfall compared with a €8.7 billion surplus a year earlier, as import costs continued to outpace exports .

Against this backdrop, the surge in European electric vehicle sales—fuelled by high petrol prices—may prove unsustainable, according to analysts at Yahoo Finance, who caution that the current growth is a temporary response to energy market volatility rather than a structural shift in consumer behaviour . Meanwhile, JPMorgan has identified European equities as attractively priced following the recent oil price slump, suggesting that the region’s stock markets could offer value for investors willing to look beyond short-term geopolitical risks .

The dollar’s strength, however, is not without consequences. In the Netherlands, insurers and security experts report that rising gold prices—often seen as a hedge against inflation—have contributed to a surge in home burglaries, with incidents reaching their highest level in nearly three years . The episode highlights the far-reaching economic and social repercussions of the current geopolitical and monetary landscape.

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