The U.S. dollar strengthened notably on Friday, drawing strong support from safe-haven demand triggered by escalating geopolitical tensions between Israel and Iran. The Israeli military reported intercepting missiles fired from Iranian territory, while Iran announced it had shot down an Israeli drone near its sensitive Fordow nuclear facility. In response, President Donald Trump acknowledged full awareness of Israel's planned operations but expressed confidence in continued diplomatic negotiations, downplaying fears of a broader regional conflict.

Amid the intensified Middle East uncertainty, investors turned defensively toward the greenback, causing Treasury yields to edge upward and significantly pushing WTI crude prices over 7% higher, underscoring market concerns about potential disruptions in global oil supplies.

EUR/USD pressured lower, technical outlook remains constructive

EUR/USD dropped sharply, hitting an intraday low of 1.1490 as the dollar broadly rallied amid increased risk aversion. However, the currency pair’s losses were partially offset by substantial euro option expiries totaling roughly EUR3.7 billion due Monday and short-lived rebounds in U.S. equity markets, which temporarily steadied investor sentiment. Technically, EUR/USD retained a mildly bullish outlook, managing to stay above its critical 10-day moving average, suggesting underlying resilience. Market participants will closely monitor developments from the upcoming G7 summit, seeking clarity on trade policies and geopolitical stances.

Sterling dips but remains range-bound ahead of key events

GBP/USD was weighed down by the broader rally in the dollar, but losses remained modest. The pair held within its established range between 1.3334 and 1.3652. UK Prime Minister Keir Starmer discussed the escalating situation in the Middle East with President Trump, urging diplomatic solutions and de-escalation. Looking forward, traders are awaiting crucial UK inflation data and the Federal Reserve's policy meeting next week, both of which could drive meaningful volatility for sterling, particularly given the balancing act between domestic economic pressures and geopolitical uncertainties.

Yen gains on safe-haven appeal; USD/JPY faces technical hurdles

USD/JPY initially moved higher but subsequently reversed course, retreating below its daily Ichimoku cloud and crucial 21-day moving average as U.S. equity markets declined later in the session. Increased demand for yen-denominated haven assets was driven by heightened geopolitical concerns, while the presence of significant option expiries—totaling nearly $7 billion near the psychologically important 145 level—added complexity to short-term positioning. Technical indicators suggest a critical juncture ahead: resistance at the Ichimoku cloud top at 145.59 must be overcome to restore bullish momentum, while substantial support remains around the 142 area.

Commodity markets reflect cautious investor sentiment

Gold prices advanced significantly, rising 1.56%, as geopolitical tensions drove investors toward safe-haven assets. Conversely, copper prices slipped modestly by 0.43%, reflecting broader market caution and persistent concerns about global economic growth and industrial demand. With energy markets sharply higher due to Middle Eastern risks, commodities demonstrated a distinctly mixed picture, emphasizing investor uncertainty about near-term market conditions.