The US dollar firmed on Monday as anxious investors sought safety, although the restrained moves suggest markets were waiting for Iran's response to US attacks on its nuclear sites that have exacerbated conflict in the Middle East.
The major moves were in the oil market, with crude prices hitting a five-month high, while global stocks slipped after the US attacked Iran's nuclear sites and President Donald Trump raised the idea of regime change in the Islamic republic.
In currency markets, the euro was 0.33% lower at $1.1484, while the Australian dollar, often seen as risk proxy, hit a one-month low and was last 0.67% weaker at $0.6408.
That left the dollar index, which measures the US currency against six other units, 0.12% higher at 99.037. Sterling was 0.26% lower at $1.3416, while the New Zealand dollar sank 0.68% to $0.5926.
Carol Kong, currency strategist at Commonwealth Bank of Australia, said the markets are in wait-and-see mode on how Iran responds, with more worries about the positive inflationary impact of the conflict than the negative economic impact.
"The currency markets will be at the mercy of comments and actions from the Iranian, Israeli and US governments," Kong said. "The risks are clearly skewed to further upside in the safe haven currencies if the parties escalate the conflict."
The dollar was up 0.52% against the yen at 146.81 after touching a one-month high earlier in the session. The US currency cast a shadow on other Asian currencies, including the rupiah, ringgit and the Philippine peso.
Bank of America strategists said the dollar-yen can reprice higher if oil prices remain elevated, noting Japan imports almost all of its petroleum, more than 90% of which comes from the Middle East, while the US is largely energy-independent.
"We think USD/JPY works as a hedge against an escalation in geopolitical tension in the Middle East with positive carry," they said in a note.
Iran vowed to defend itself a day after the US dropped 30,000-pound bunker-buster bombs onto the mountain above Iran's Fordow nuclear site. American leaders urged Tehran to stand down while pockets of anti-war protests emerged in US cities.
In a step towards what is widely seen as Iran's most effective threat to hurt the West, its parliament approved a move to close the Strait of Hormuz. Nearly a quarter of global oil shipments pass through the narrow waters that Iran shares with Oman and the United Arab Emirates.
"Markets appear to be treating the US strikes on Iran as a contained event for now, rather than the start of a broader war," said Charu Chanana, chief investment strategist at Saxo.
"The muted haven flows suggest investors are still assuming this is a one-off escalation, not a disruption to global oil supply or trade."
While the dollar has reprised its role as a safe haven due to the rapid spike in geopolitical risks, the relatively muted moves suggest investors remain wary of going all in on the greenback.
The US currency has dropped 8.6% this year against its major rivals as economic uncertainty from President Donald Trump's tariffs and concern over their impact on US growth led investors to scurry for alternatives.
In cryptocurrencies, bitcoin was up 1.75% in early trade after dropping about 4% on Sunday, while ether rose 2.3% on Monday after sliding 9% in the previous session.
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