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The strangest thing in global currency markets right now is how little panic there is. We’re seeing war headlines flying, oil prices jumping around like its nothing, stocks and crypto moving indecisively wobbly reacting hard, and yet a lot of currency trading still looks half-asleep.

Early Wednesday in Asia, traders stayed careful as Trump said the United States was making progress in efforts to end the war he started with Iran. Tehran knocked that down and said no direct talks had taken place.

That quiet tone looked even stranger because other assets were far more lively. Equity futures pushed higher and crude prices dropped after Trump said on Tuesday that Washington was making progress toward a negotiated end to the war. In currency markets, though, the reaction was mild.

The euro rose 0.1% to $1.1619. The British pound added 0.1% to $1.3428. The New Zealand dollar held at $0.5834. The U.S. dollar index slipped 0.1% to 99.126. In crypto, the tone was firmer, with bitcoin up 1.2% at $70,910.16 and ether up 0.8% at $2,164.74.

Traders stay cautious as war headlines clash with rate pressure

The Australian dollar was one of the few places where traders had something sharper to deal with, as it fell as much as 0.2% to $0.6983, then recovered and traded flat after Aussie February inflation came in at 3.7% before the U.S.-Israeli war with Iran began. That was a little softer than analysts expected. It helped steady the local currency, but it did not change the broader mood.

The numbers across Asia-Pacific showed just how uneven this market was. USD/KRW traded at 1,498, up 1.97 points or 0.132%.USD/SGD was 1.278, up 0.001 or 0.063%.USD/INR slipped to 93.894, down 0.119 or 0.127%.

NZD/USD was 0.583, down 0.001 or 0.171%. USD/HKD stood at 7.827, up 0.001 or 0.01%. In Europe, USD/RUB fell to 80.496, down 1.425 or 1.77%, while USD/SEK rose to 9.326, up 0.03 or 0.32%.

Interest rate expectations also started changing fast. Markets still mostly expect no change in U.S. rates this year, but bets on tighter policy suddenly picked up. Fed funds futures showed a 30.2% chance of a 25-basis-point hike at the Federal Reserve’s December meeting.

A day earlier, that chance was only 8.2%, based on CME Group’s FedWatch tool. On Tuesday, Federal Reserve Governor Michael Barr said rates may need to stay where they are for “some time” before more cuts make sense. He pointed to inflation still sitting above the Fed’s 2% target and to extra risks coming from the Middle East.

Bond markets calmed down after a rough week. The yield on the U.S. 10-year Treasury fell 5 basis points to 4.338%. Westpac analysts wrote, “Higher oil prices added to expectations of increasing inflationary pressures and tighter monetary policy.” That matters because rate bets and oil prices are now doing a lot of the work in currency pricing.

Strategists warn growth fears could slow the dollar rally

There is another layer to this currency story. Goldman Sachs said the dollar’s rise since the war began could lose steam if traders stop worrying mainly about inflation and start worrying more about economic growth.

In a note on Tuesday, Isabella Rosenberg wrote, “While the market has largely priced the oil shock as an inflation and terms-of-trade event, a shift towards larger downside growth risks would likely temper broad dollar appreciation” against G-10 currencies.

Goldman said the Japanese yen and the Swiss franc would likely gain the most against the dollar if growth fears deepen and tighter financial conditions come through falling stocks.

The bank also said a long war would hurt growth and currency outlooks across Europe and Asia. Isabella added that inflation risks could still ease, but that outcome “becomes more difficult the longer the conflict lasts.”

The longer-term picture for the dollar is mixed, not broken. Over the past year, and before this war took over the story, the U.S. dollar weakened against the euro and the pound, moving from 0.95 to 0.85 and from 0.79 to 0.74. Against the yen, it strengthened from 150 to 155. Its share of global reserves also slipped from about 58% to 56%.

That is down from roughly 60% in the mid-1990s and below the 70% peak in 2000, but it still leaves the dollar far ahead of every rival. The euro accounts for about 20% of reserve holdings. The renminbi accounts for ~2%.

Outside paper money, gold is still the main reserve asset. Its price has climbed about 65% in dollar terms over the past year. Even with all the talk about central bank buying, the physical amount held in central bank vaults has risen by only about 3 percentage points.

Meanwhile, America’s share of world trade has fallen from about 18% in 2000 to roughly 12% in 2025, but the dollar is still the main currency used in global trade.

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