The United States dollar has climbed to its highest level in nearly four weeks as investors rushed toward safe-haven assets amid growing uncertainty in the Middle East and fears of fresh inflationary pressure.
Geopolitical Tensions Drive Dollar Demand
Escalating geopolitical tensions, failed peace efforts, and rising concerns over the global economic impact of prolonged conflict have strengthened demand for the greenback. Investors are increasingly positioning in the dollar, viewing it as the safest option during periods of market instability.
This renewed demand has also added pressure on the Nigerian naira, which has continued to depreciate across both official and parallel foreign exchange markets as global dollar strength intensified.
Naira Depreciates Across Markets
According to data from the Central Bank of Nigeria (CBN), the Nigerian currency depreciated slightly in the official market on Friday, May 15, 2026, to close at N1,372 per dollar, down from N1,371 the previous day. Meanwhile, Nigeria's external reserves rebounded to $48.58 billion on FX inflows from oil earnings, rising by $10 billion year-on-year.
Euro and Pound Under Pressure
The euro came under significant pressure as traders worried that higher oil prices could worsen inflation across the Eurozone and deepen the region's energy challenges. The EUR/USD pair slipped below the 50% midpoint retracement of the rally from its March low, settling beneath the key technical level of 1.16287. Analysts say the inability to hold above that point has handed more control to sellers in the short term.
Similarly, the British pound weakened against the dollar. The GBP/USD pair dropped below the 61.8% retracement of its rally from the March 31 low, crossing beneath the critical level of 1.33496. This break shifted short-term market sentiment to the downside after buyers failed to maintain momentum above that level, further strengthening the dollar's broad market rally.
Yen Holds Key Support
Against the Japanese yen, the dollar maintained strength, with the USD/JPY pair holding above a major swing area between 157.97 and 158.26. This support zone has helped preserve the upside bias for the dollar, although traders remain cautious after buyers failed to push beyond the recent session high. Market watchers say the yen's performance remains closely tied to risk sentiment and expectations around further monetary tightening in the United States.
Oil Prices Rise as Middle East Crisis Persists
The situation in the Middle East remains tense and unresolved, with former US President Donald Trump reportedly describing the opening sentence of Iran's latest proposal as "unacceptable," signalling little progress in diplomatic efforts. As uncertainty deepened, oil prices continued to rise sharply, even as the Strait of Hormuz remained closed, fueling fears of prolonged supply disruptions and stronger inflationary pressure worldwide.
Meanwhile, a high-level summit between Trump and Chinese President Xi Jinping ended without major agreements, including no clear sign that Beijing would intervene to help calm the regional conflict.
Fed Rate Hike Expectations Strengthen
Fresh US inflation reports have further supported the dollar's rally. Both the Consumer Price Index (CPI) and Producer Price Index (PPI) released this week suggested that rising energy costs are beginning to push inflation higher in the United States, according to a report by MarketForces Africa. As a result, traders are now fully pricing in at least one interest rate hike by the US Federal Reserve in March next year, with more than a 50 per cent chance of another rate increase before the end of 2026.
The stronger rate outlook has added more momentum to the greenback, with the biggest gains recorded against the Australian dollar and the British pound. Overall, the US dollar has gained nearly 1% this week, reinforcing its dominance as global investors seek protection from geopolitical and inflation-driven uncertainty.
