The euro weakened against the U.S. dollar on Monday, while the greenback strengthened on rising geopolitical tensions following U.S. strikes on three nuclear facilities in Iran over the weekend. The move unsettled global markets amid uncertainty over how Tehran might respond.

As of 06:09 ET (10:09 GMT), the euro had fallen 0.4% to $1.1473, while both the U.S. Dollar Index and dollar index futures climbed 0.6%, extending modest gains from last week. The dollar’s strength was underpinned by renewed demand for safe-haven assets, though traditional havens like gold and the Japanese yen slipped.

Asian currencies also faced pressure, continuing last week’s losses as investors reacted to hawkish signals from the Federal Reserve. Several Fed officials are scheduled to speak this week, with Chair Jerome Powell set to testify before Congress on Tuesday and Wednesday, potentially offering more insight into the Fed’s policy outlook.

Focus Turns to Iran’s Next Move

Iran has yet to outline a clear response to the U.S. strikes, stating only that it reserves all options to defend itself. The country has warned of “everlasting consequences” and escalated its aerial bombardments of Israel, which launched its own surprise attack on Iranian nuclear sites 11 days earlier. Iranian officials have referred to former President Trump as a “gambler” and suggested that the strikes may broaden the scope of its military retaliation.

Speculation is growing that Iran could retaliate by blocking the Strait of Hormuz, a critical route for global oil and gas exports. Other reports suggest Iran may consider targeting U.S. military installations in the region.

While the strikes have heightened tensions, some analysts believe they may remove ambiguity about Washington’s willingness to act militarily. Markets are now closely watching for the broader economic implications—particularly on inflation and interest rate expectations.

Energy and Inflation Concerns Rise

Energy markets remain a key area of concern. Oil prices rose on Monday, trimming earlier gains, as traders warned that any escalation in the Israel-Iran conflict could disrupt crude supplies through the Strait of Hormuz. A sharp rise in oil prices could reignite inflationary pressures, potentially prompting the Fed to delay any interest rate cuts.

“Oil remains the key driver for foreign exchange,” analysts at ING noted in a client briefing.