Dhaka, June 16 -- A dramatic spike in the potential for all-out war between Israel and Iran would typically be expected to spark an immediate and strong rally in the US dollar, with investors seeking the safety and liquidity of the world's reserve currency.

That didn't happen on Friday.

The dollar's response to Israel's strikes on Iranian nuclear facilities and military commanders, followed by Tehran's initial threats and retaliation, was pretty feeble. The dollar index, a measure of the currency's value against a basket of major peers, ended the day up only around 0.25 percent.

To be sure, the dollar fared better than US stocks or Treasuries, which both fell sharply on Friday. But with oil surging over 7 percent and gold up a solid 1....