Dollar index drops over 1 per cent as West Asia tensions unsettle markets

The US Dollar Index (DXY) fell sharply on Wednesday, declining by more than 1 per cent to around 98.6, as escalating geopolitical tensions in the West Asia rattled global financial markets and weakened demand for the US currency.

The latest slide has effectively wiped out the gains the dollar had accumulated earlier this year, reflecting growing unease among investors.

The index, which measures the dollar’s strength against a basket of six major currencies, is widely regarded as a key gauge of its global performance. The euro holds the largest share in the basket, followed by the Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

A drop in the index signals a broad weakening of the US currency against its peers, and Wednesday’s fall underscores the impact of rising uncertainty on market sentiment.

The decline comes despite a recently announced two-week ceasefire agreement involving the United States, Iran and Israel. While the deal initially eased fears of a wider conflict, fresh reports of attacks in Iran and parts of the Gulf region have cast doubt on its durability.

Investor concerns have been further heightened by indications that Iran and Oman may consider imposing transit fees on vessels passing through the strategically vital Strait of Hormuz.

The waterway, a critical artery for global energy supplies, has traditionally been treated as an international passage where shipping moves without such charges. Any shift in this arrangement could disrupt trade flows and increase costs.

Taken together, the renewed geopolitical risks and uncertainty surrounding key shipping routes have dampened confidence in financial markets, putting pressure on the dollar.

Analysts expect volatility to persist in the near term as developments in the region continue to unfold.