Conflict Drives Flight to Safety (2-6 March 2026)

Rising tensions in the Middle East pushed investors toward safer assets.

The dollar climbed to a five-week high near 98, while US Treasury yields fell to their lowest since September 2024. Gold jumped above $5,370 and silver moved past $95 as demand for protective assets increased. Brent crude briefly surged above $78 on concerns over supply risks linked to the Strait of Hormuz.

In the US, jobless claims remained low at 212,000, pointing to a steady labor market. Producer prices rose 0.5% in January, and the ISM Manufacturing PMI returned to expansion at 52.6. Mortgage rates declined to 6.09%, though housing activity showed mixed signals.

Currencies

Dollar Index (DXY): The dollar index climbed 0.5% to 98 on Monday, reaching a five-week high as capital shifted toward safer assets following US and Israeli strikes on Iran. The attacks reportedly killed Ayatollah Ali Khamenei and disrupted shipping in the Gulf. Iran responded by targeting US-linked assets across the UAE, Bahrain, Kuwait, Qatar, Saudi Arabia, Jordan, Iraq, and Syria.
Euro: The euro eased to $1.18 after fresh inflation data shaped expectations for ECB policy. Germany’s harmonized CPI slowed to 2.0%, France’s rose to 1.1%, and Spain’s reached 2.5%, above forecasts. Markets see roughly a 30% chance of an ECB rate cut by December. Christine Lagarde said inflation should move toward 2% over time, with food prices likely to stay slightly elevated, and ruled out direct currency intervention. EUR/USD traded near 1.1785, down 0.28% on the month but up 12.39% year-on-year.
British Pound: Sterling slipped to 1.3442, down 0.31% on the session. The pound has fallen 1.87% over the past month but remains 5.83% higher over the year. Political pressure increased after Labour lost the Gorton and Denton by-election, raising questions about Prime Minister Keir Starmer and Chancellor Rachel Reeves. Consumer confidence weakened in February as unemployment rose, while expectations for Bank of England rate cuts gained traction.
Japanese Yen: USD/JPY advanced early in the week, nearing last week’s high but struggling below 157. Rising tensions in the Middle East lifted oil prices and supported the dollar. The yen found some backing from views that the Bank of Japan will stay on its current policy path, while concerns over possible intervention limited further upside in the pair.

Commodities

Gold Ignites Above $5,370

Gold surged more than 1% to trade above $5,370 per ounce, reaching a one-month high after US and Israeli strikes on Iran intensified the regional conflict. The reported death of Ayatollah Ali Khamenei and disruptions to Gulf shipping routes drove strong demand for defensive assets. February marked gold’s seventh consecutive monthly gain, the longest stretch since 1973, supported by geopolitical stress, steady central bank buying, and reduced appetite for bonds and fiat currencies.

Brent Breaks Higher, Tests $78

Brent crude spiked as much as 12% at the weekly open before stabilizing more than 8% higher above $78 per barrel, its highest level in eight months. The coordinated strikes on Iran fueled concerns over possible disruptions through the Strait of Hormuz, a corridor handling around one-fifth of global oil supply. Some shippers began rerouting vessels as a precaution. Iran responded with strikes on US-linked assets, while OPEC+ confirmed a modest 206,000 barrel-per-day output increase for April.

Silver Shines Past $95 as Demand Surges

Silver advanced nearly 2% to trade above $95 per ounce, also reaching a one-month peak. Rising Middle East tensions and the reported closure of the Strait of Hormuz strengthened demand for precious metals. Iran’s retaliation against US targets in the region further heightened risk, reinforcing silver’s momentum alongside gold.

Fixed Income

US 10-Year Treasury Yield: The US 10-year Treasury yield declined to around 3.93%, its lowest level since September 2024, as rising conflict in the Middle East drove investors toward government bonds. Weekend strikes by the US and Israel on Iran, followed by Tehran’s retaliation across the region and disruptions in the Strait of Hormuz, strengthened demand for safer assets. Even though January producer prices came in higher than expected, markets continue to factor in two 25-basis-point Federal Reserve rate cuts this year.
UK 10-Year Gilt Yield: The UK 10-year gilt yield dropped to 4.25%, the lowest since December 2024. The move followed Labour’s loss in the Gorton and Denton by-election, which raised questions around Prime Minister Keir Starmer and Chancellor Rachel Reeves and added uncertainty to the fiscal outlook. Consumer confidence weakened in February as unemployment rose. Still, firm fiscal data, a softer Bank of England tone, easing labor pressures, and cooling inflation helped stabilize sentiment.
Japan 10-Year Government Bond Yield: Japan’s 10-year government bond yield slipped below 2.1%, reaching a seven-week low as geopolitical tensions increased demand for defensive assets. Developments in Iran and concerns over energy routes added to risk sensitivity. Investors are also assessing Bank of Japan policy after two reflation-oriented academics joined the board. Governor Kazuo Ueda indicated that decisions at the March and April meetings will be key, leaving the possibility of a near-term rate hike open.
Germany 10-Year Bund Yield: Germany’s 10-year Bund yield eased to 2.68%, its lowest since late November, as fresh inflation data shaped views on European Central Bank policy. Germany’s harmonized inflation slowed to 2.0% in February, near the ECB’s target, while France and Spain recorded stronger readings at 1.1% and 2.5%, respectively. Markets assign roughly a 30% chance of an ECB rate cut by December. Christine Lagarde stated that inflation should move toward 2% over time, with food prices likely to remain slightly high, and confirmed that direct currency intervention is not under consideration.

Economic Data

US Initial Jobless Claims

Initial jobless claims edged up by 4,000 to 212,000 in the third week of February, slightly below the 215,000 forecast and still well under the two-year average. Continuing claims declined by 31,000 to 1,833,000, one of the lowest readings in ten months. The figures point to a steady labor market, with limited layoffs and slower hiring. Claims filed by federal employees also eased to 554, down by 141, reducing concerns about disruption from a potential government shutdown.

US Producer Price Index (MoM)

Producer prices increased 0.5% in January, exceeding the 0.3% expectation and following a revised 0.4% rise in December. Service costs advanced 0.8%, the sharpest gain since July, driven by a 14.4% jump in professional and commercial equipment wholesaling, alongside higher prices in apparel, chemicals, telecom, health and beauty products, and food and alcohol retail. In contrast, goods prices fell 0.3%, led by a 5.5% drop in gasoline. On an annual basis, producer inflation slowed to 2.9%, the lowest in three months, while core prices rose 0.8% monthly and 3.6% year-on-year, both above projections.

US ISM Manufacturing PMI

The ISM Manufacturing PMI climbed to 52.6 in January from 47.9, beating the 48.5 estimate and marking the first expansion in a year, with the strongest reading since 2022. New orders rose to 57.1, production to 55.9, and supplier deliveries to 54.4. Employment (48.1) and inventories (47.6) remained below the expansion threshold, while price pressures held steady at 59. Seasonal restocking and early purchases linked to tariff concerns may have supported the rebound, according to Susan Spence.

MBA 30-Year Mortgage Rate

The average 30-year fixed mortgage rate fell to 6.09% in the week ending February 20, down from 6.17%, marking a second consecutive decline and the lowest level since early September 2022. Mortgage applications rose 0.4%, with refinancing up 4.1%, while purchase applications declined 4.7%. Although lower rates offer some relief, home prices remain slightly above last year’s levels, and broader economic uncertainty continues to influence buyer sentiment.

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