Blog By David Stritch, Senior Multicurrency Analyst, Caxton | October 12th 2026
The Houthi strikes on Riyadh’s airport have raised the risk of a wider Gulf war. That risk is pushing oil prices up and sending investors towards the US dollar. The dollar is at its strongest against the euro since spring 2025, and sterling is only slightly firmer. Wednesday’s US inflation data could add to the dollar’s lead.
Key takeaways
The Houthis have claimed a series of missile attacks on Riyadh’s main airport over the past week. Saudi Arabia’s civil aviation authority said two attacks on King Khalid International Airport on 8 October killed three Saudi nationals, including a Saudia pilot. Earlier strikes on airports in Riyadh and Abha killed three more people and wounded dozens.
The disruption has been heavy. Hundreds of flights to and from Riyadh were cancelled, and several international airlines have suspended services to the Saudi capital. Over the weekend, firefighters tackled a blaze at an Aramco fuel depot near the airport after the Houthis claimed a new wave of missile and drone strikes, including on Aramco facilities at Yanbu.
Riyadh’s response is hardening. The coalition has warned that attacks on civilians will be met with a firm response, and it says it has already struck dozens of Houthi military targets across Yemen. Saudi Arabia is now reported to be weighing a heavier military campaign.
Attacks on civilian targets rarely force an opponent to retreat. The strikes appear designed to push Saudi air forces into ending their missions over Yemen. The Houthis frame them as retaliation for Saudi strikes on airports in Sanaa and Hodeidah.
History suggests a different outcome. Attacks like this tend to harden an opponent’s resolve, even when public support for a campaign was weakening. September 11th is the clearest modern example. Pearl Harbour is the other obvious case, although that was a military target. Riyadh looks more likely to escalate than to back down.
It matters mainly through oil. The more Saudi Arabia strikes Yemen, the greater the risk of drawing Iran into a direct confrontation with its Gulf neighbours. Iran backs the Houthis as a counterweight to its longtime Saudi rival. A direct Iranian-Saudi clash would put some of the world’s most important energy infrastructure at risk.
There is a precedent. In September 2019, drones and missiles that Washington and Riyadh blamed on Iran struck the Abqaiq and Khurais oil facilities. Oil prices jumped sharply in a single session.
The backdrop is already tight. Oil flows through the Strait of Hormuz have been heavily disrupted this year, and the Red Sea has become the key alternative route for Saudi exports. Houthi strikes threaten exactly that route.
[Chart: Brent Crude 1 Year. Brent crude is rising again as Gulf risks build. Source: Bloomberg, 11 October 2026.]
Higher oil prices hurt the euro and the pound more than the dollar. The eurozone and the UK import most of their energy, so expensive oil reduces their growth and raises their inflation. The US is a major energy producer and is less exposed. When markets are nervous, investors also tend to buy dollars as a safe place to hold money.
The move is clearest against the euro. One dollar now buys about €0.894, the most since spring 2025. The rally has been almost uninterrupted since the August lows near €0.857. The euro is down 4.75% against the dollar this year. Sterling has fared only modestly better and is still almost 2% lower against the dollar over the past month.
The main event this week is US inflation. The US CPI report for September is due on Wednesday 14 October at 13:30 UK time, with consensus for headline inflation at around 3.7%. Otherwise, it is a quiet week for data.
Markets currently give only a 17% chance of a Federal Reserve rate hike at the 28 October meeting. A hotter-than-expected reading would raise that probability and could push the dollar higher again. A softer reading would give the euro and the pound some relief, but the Gulf headlines would still matter more. The European Central Bank meets the following day, on 29 October.
Anyone who needs to buy dollars is facing a more expensive exchange rate than a month ago. That includes paying suppliers priced in dollars. Further sharp moves could follow in either direction depending on Middle East headlines. Energy-intensive businesses also face the risk of higher fuel and freight costs being passed on through supply chains.
There are tools that can reduce this uncertainty:
For people receiving dollars, such as exporters or anyone holding US assets, a stronger dollar is good news. It may be worth considering whether to lock in part of that value.
My read is that the Houthis have misjudged their opponent. The Riyadh strikes are more likely to provoke a larger Saudi operation than to bring an end to the air campaign. That means the risk of a wider Gulf conflict is rising, not falling, and oil will stay sensitive to every headline. While that continues, the dollar has the advantage. The euro looks the most exposed of the majors because of its reliance on imported energy. Wednesday’s CPI could reinforce the dollar’s lead, but the Middle East remains the bigger driver of currency markets this week.
Please be aware the below rates represent the market rate at 7:30 AM. Contact your Caxton dealer or check online for a live quote.
| Pair | Rate | 1 day | 5 days | 1 month | 3 months | Year to date |
|---|---|---|---|---|---|---|
| GBP/USD | 1.3237 | -0.01% | +0.08% | -1.97% | -0.86% | -1.80% |
| EUR/USD | 1.1195 | -0.10% | -0.30% | -3.12% | -1.69% | -4.75% |
| GBP/EUR | 1.1816 | -0.12% | -0.38% | -1.17% | -0.85% | -3.00% |
| USD/JPY | 158.24 | +0.04% | -0.21% | -2.46% | +2.65% | -0.97% |
| AUD/USD | 0.6979 | -0.19% | -0.03% | -2.38% | +0.75% | +4.45% |
| USD/NZD | 1.7824 | +0.06% | -0.18% | +2.99% | +2.49% | +2.62% |
| USD/CAD | 1.4269 | -0.13% | -0.11% | -2.61% | -0.84% | -3.86% |
| GBP/AUD | 1.8955 | -0.17% | -0.11% | -0.41% | +1.62% | +6.35% |
| GBP/NZD | 2.3600 | -0.07% | +0.07% | -0.97% | -1.60% | -0.79% |
| GBP/CAD | 1.8883 | -0.08% | -0.20% | -0.66% | +0.01% | -2.13% |
Why does the dollar rise when there is conflict in the Middle East?
Investors tend to move into the dollar when markets are anxious, because it is the world’s most widely held reserve currency. The US also produces much of its own energy, so higher oil prices hurt it less than they hurt Europe or the UK.
Why is the euro weaker than the pound right now?
Both are under pressure, but the eurozone is especially dependent on imported energy, so oil spikes hit its growth outlook hard. The euro has fallen 3.1% against the dollar over the past month, compared with almost 2% for sterling.
When is the next US CPI release?
Wednesday 14 October 2026 at 13:30 UK time, covering September’s data. It is the last major inflation reading before the Federal Reserve’s 28 October decision.
Could the Federal Reserve raise interest rates in October?
Markets currently see this as unlikely, at about a 17% chance. A stronger-than-expected inflation reading could increase that probability.
How can a business protect itself from currency swings like these?
Forward contracts can fix the exchange rate on future payments. Rate alerts and spreading large transfers over several dates can also reduce the impact of sudden moves.
If you have dollar or euro payments coming up and want to understand your options, speak to one of Caxton’s multicurrency dealers. They can talk you through forward contracts, rate alerts and the right approach for your cash flow.
This article is for information only and does not constitute financial advice. Exchange rates can move quickly and past performance is not a guide to future performance.