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The Bloomberg Dollar Spot Index rose 1.6% so far this week. If the gains hold, the index is poised to have its best week since September 2022. The moves this week have partly reversed broader weakness in the dollar caused by policy uncertainty from Washington, and expectations that the Federal Reserve was poised to cut rates this year.

But the price of US benchmark West Texas Intermediate crude has jumped more than 18% since the US started bombing Iran on Feb. 28, fanning inflationary concerns and damping expectations for US interest-rate cuts, which has helped to boost the dollar.

The dollar index is roughly unchanged for the year so far, although it remains down more than 8% since President Donald Trump’s inauguration last year.

Ahead of the nonfarm payrolls data on Friday, traders in the one-week options market are the most bullish on the greenback since June 2024. A strong jobs report could add to the market’s confidence, say traders.

“Economic data releases are no less important now than they were prior to the conflict,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “Labor numbers have been relatively strong recently, and should we see that trend continue with NFPs tomorrow, then we expect to see further appreciation in the dollar.”

US employers are expected to have added 55,000 jobs in February, compared with 130,000 jobs in January, according to a Bloomberg survey of economists. Currency watchers said that better-than-expected figures could drive a fresh wave of dollar buying as investors calibrate their Fed expectations.

“A strong print would reinforce the hawkish repricing already under way and extend the dollar’s recent advance,” said Karl Schamotta, chief market strategist at Corpay. “The foreign exchange implications are asymmetric: the yen, the euro and sterling stand out as the major currencies most exposed to another wave of selling.”

Meanwhile, in the US, even a weaker-than-expected jobs report is unlikely to get the Federal Reserve to cut rates, said analysts.

“You would need to see a very weak NFP report and rise in unemployment rate for markets to consider Fed easing at all this year with a focus on the conflict and inflation concerns,” said Jayati Bharadwaj, a currency strategist at TD Securities.

Dollar strength is coming as the outlook sours for the euro.

The war-induced energy-price rally reminded investors how dependent Europe is on energy from the Middle East, raising fears of stagflation. The euro lost 1.8% against the dollar through this week and traded near $1.1575 on Thursday.

“The closure of the Strait of Hormuz (lack of shipping insurance, continued attacks) implies stagflation dynamics,” wrote Davide Oneglia, an economist at TS Lombard, in a note this week. He said the shock to Europe’s economy from reduced energy flows and higher prices could reduce GDP by as much as 0.9%.

Reporting by Anya Andrianova and Carter Johnson