US Dollar Near 10-Month High Amid Middle East Tensions
The US dollar traded close to a 10-month high on Monday, heading for its strongest monthly performance since last July, as geopolitical uncertainty in the Middle East continued to support demand for safe-haven assets.
Conflicting signals from Iran and the United States reduced expectations of a quick resolution to the ongoing conflict, keeping markets on edge.
Geopolitical Developments Support Dollar Strength
U.S. President Donald Trump stated that Iran’s new leadership has been “very reasonable,” even as additional U.S. troops were deployed to the region. At the same time, Tehran warned it would not accept any form of humiliation, highlighting ongoing tensions.
These mixed developments have reinforced uncertainty, contributing to sustained demand for the dollar.
Yen and Euro React to Market Pressures
The Japanese yen hovered near the critical 160 per dollar level, close to its weakest point since July 2024, when Japanese authorities last intervened to support the currency.
Meanwhile, the euro found limited support, driven by expectations that the European Central Bank (ECB) may proceed with interest rate hikes.
Oil Prices and Strait of Hormuz Disruption
Global markets have been unsettled throughout the month as the Iran conflict disrupted the Strait of Hormuz, a vital passage for roughly 20% of global oil and gas supply.
This disruption pushed Brent crude prices toward a record monthly increase, adding further pressure to global economies.
Safe-Haven Demand Boosts the Dollar
The dollar has benefited from its safe-haven appeal since early March. Rising oil prices have negatively impacted energy-importing regions such as Japan and the eurozone, while the United States has been relatively insulated due to its status as a net oil exporter.
The US Dollar Index remained stable at 100.19, after reaching 100.54 in mid-March, its highest level since May 2025. The index is on track for its largest monthly gain since July 2025.
According to Barclays, dollar sentiment is nearing “max bullish” levels, based on indicators such as growth expectations, interest rate differentials, and market beta.
Market Outlook and Key Economic Data
Market participants are now focused on upcoming U.S. labor market data, which could play a crucial role in shaping expectations for the Federal Reserve’s monetary policy.
Chris Weston, head of research at Pepperstone, noted that the current strategy is to sell rallies in risk assets and maintain volatility hedges.
Similarly, Bob Savage of BNY highlighted the importance of this week’s data, especially after a weak February jobs report and a month of geopolitical instability.
Euro Outlook and ECB Expectations
The euro traded around $1.15, heading for a 2.5% monthly decline, its weakest performance since July.
Analysts suggest that expectations of a more proactive ECB have prevented a sharper decline in the euro, despite rising oil prices and a stronger dollar.
Markets have shifted their outlook significantly, now pricing in ECB rate hikes by year-end, compared to earlier expectations of potential rate cuts before the conflict escalated.
Japanese Yen Near Intervention Levels
The Japanese yen strengthened 0.40% to 159.65 per dollar, after earlier touching 160.47, its weakest level since July 2024.
The rebound followed signals from Japanese authorities suggesting possible currency intervention, along with indications that further yen weakness could lead to a near-term interest rate increase.
Despite this recovery, the yen has still declined more than 2% in March, largely due to rising oil prices.
Other Currency Movements
The Australian dollar fell 0.3% to $0.6851, putting it on track for a 3.8% monthly decline, its steepest drop since December 2024.
The New Zealand dollar also weakened, falling 0.4% to $0.57275, marking a 4.4% loss for the month.
