The dollar rallied Friday, as investors rushed back into the currency in their search for safe-haven assets, including gold, after Israel launched widescale strikes against Iran, sparking Iranian retaliation.

Israel said it targeted a wide range of military targets in Iran, in response to which Iran launched a barrage of drones. U.S. and Iranian officials were due to hold a sixth round of talks in Oman on Sunday on Tehran's uranium enrichment program.

Israel's ambassador to the United Nations said the government's determination to strike Iranian targets was an independent decision. Initially, the Swiss franc and Japanese yen rallied, before ceding ground to the dollar, which until recently, has always been the ultimate safe-haven in times of geopolitical or financial turmoil.

Against a basket of major currencies, the dollar rose by nearly 0.6%, as losses mounted for the euro, sterling and the Australian dollar in particular.

"The dollar is reverting to that traditional role of safe haven, which we haven't seen for months," City Index strategist Fiona Cincotta said.

"This is headlines driving this. And I think, obviously, we've got the Federal Reserve interest rate decision next week, so the boost may well be short-lived if we see escalations calm down over the weekend," she said.

The euro broke a four-day rally to trade down 0.4% at $1.1538, but still within sight of Thursday's near-four-year high of $1.163225. Against the yen, the dollar rose 0.2% to 143.76, having touched an overnight low of 142.795 before recovering, while against the Swiss franc, it also rose 0.2% to 0.81155 francs.

Investors also snapped up U.S. Treasury bonds, sending the yield on the benchmark 10-year note down as much as 4.7 basis points at one point to a more-than-one-month low of 4.31%. Gold prices jumped as much as 1.7% to $3,444 an ounce, their strongest since early May.

Friday's developments created more uncertainty for investors navigating a broad range of concerns about the outlook for global trade and inflation.

Even with Friday's gains, the dollar index was trading close to its lowest level since March 2022, which it hit earlier this week, after a U.S.-China trade truce offered little clarity and U.S. President Donald Trump said he would outline unilateral terms of trade with other economies in the days to come.

The index is on track for a weekly decline of nearly 1%, its biggest drop in more than three weeks, and is set for losses against the yen, the Swiss franc and the euro.

"Geopolitical noise may temporarily distort the dollar downtrend and temporarily weigh on risk proxies especially heading into the weekend," said Christopher Wong, a currency strategist at OCBC. Two inflation reports this week showed price pressures were contained, fueling expectations of more aggressive interest rate cuts by the U.S. Federal Reserve. But tariffs could filter into prices in the coming months, analysts warned.

Following Israeli strikes, crude prices jumped more than $5 a barrel on fears of supply disruptions in the oil-rich region, which could also add to price pressures.

Later on Friday, investors will assess the University of Michigan's preliminary survey out of the U.S. for a look at how consumers have fared this month.

Decisions from the Fed, the Bank of Japan and the Bank of England are expected next week that could offer investors more clarity on the path ahead for interest rates.

The risk-off mood also hit cryptocurrencies on Friday. Bitcoin eased 1.5% to $104,336, while ether prices declined over 4.7% to $2,516.