The US dollar is likely to gain support in the near term following the latest US and Israeli military operations against Iran, even if the overall reaction of currencies remains uneven.

The weekend escalation in Iran adds to the recent supportive winds for the dollar via rising energy prices – averaging 0.5-1% for every 10% increase in oil – and a growing aversion to risk, said Themistoklis Viotakis, head of foreign exchange research at Barclays.

Washington and Tel Aviv launched a new round of strikes that appeared to be larger in scope than previous operations, with reports indicating that the Iranian leadership suffered significant losses, including Supreme Leader Ali Khamenei. President Donald Trump outlined the objectives of a full-scale war in a video message, suggesting a campaign that could last for days or weeks.

David May, HSBC strategist, said the US dollar should initially benefit from the rise in geopolitical risks.

May stated: The US dollar is likely to have the upper hand in the near term, noting that the reaction may differ from market behavior during the Iranian conflict in June 2025.

At that time, the dollar's safe-haven appeal quickly faded as uncertainty over domestic policy weighed on sentiment. This incident prompted a debate about whether the currency was losing its traditional defensive appeal.

May continued: This would be in stark contrast to its performance in June 2025 during the war with Iran. She added: At that time, the immediate strength of the US dollar proved to be very short-lived, as uncertainty surrounding US policy was a dominant feature that weakened the currency.

May argued that the previous pattern did not indicate a structural erosion of the dollar's status as a safe haven.

May said: This was not the case, in our view, adding that geopolitical shocks often produce mixed signals across foreign exchange markets.

HSBC warned that the sustainability of any dollar strength would depend heavily on the broader macroeconomic background and how risk sentiment evolves.

May concluded by saying: Geopolitical events can send confusing signals to currencies, not just the US dollar.