Dollar Holds Steady as Iran War Tensions Drive Market Anxiety
The U.S. dollar remained stable on Monday, while the Japanese yen hovered near the critical 160 per dollar level. Investors stayed cautious as they assessed the escalating conflict involving Iran, with global attention focused on the latest deadline set by U.S. President Donald Trump regarding the reopening of the Strait of Hormuz.
Trump Issues New Deadline Over Strait of Hormuz
In a strongly worded Easter Sunday post on social media, Trump warned that the United States could target Iran’s power plants and bridges if the strategic Strait of Hormuz is not reopened. He set a firm deadline of Tuesday at 8 p.m. Eastern Time.
With major markets across Asia and Europe closed due to the holiday, trading activity is expected to remain subdued. However, a clear risk-off sentiment has already emerged at the start of the week.
Rising Geopolitical Risk Supports the Dollar
According to Charu Chanana, chief investment strategist at Saxo in Singapore, the latest U.S. ultimatum adds pressure to markets not because war is certain in the immediate term, but because it increases expectations of prolonged disruption.
Investors are increasingly viewing the situation through an oil-inflation-interest rate lens. As a result, the dollar is currently seen as the most reliable safe-haven asset, outperforming traditional alternatives such as gold, bonds, and the yen.
Currency Markets React to Uncertainty
The euro slipped slightly by 0.13% to $1.151, while the British pound traded at $1.3187. Meanwhile, the dollar index, which tracks the greenback against a basket of major currencies, stood at 100.2.
The Australian dollar rose 0.13% to $0.6893 but remained close to the two-month low reached last week, reflecting broader market caution.
Oil Surge Fuels Inflation and Stagflation Concerns
Global markets have been under pressure since the outbreak of the U.S.-Israel conflict with Iran in late February. Iran’s effective closure of the Strait of Hormuz, a vital route responsible for roughly 20% of global oil supply, has triggered a sharp rise in oil prices above $100 per barrel.
This surge has intensified concerns over inflation and disrupted global interest rate expectations. At the same time, fears of slowing economic growth have raised the risk of stagflation.
Fed Rate Expectations Shift Significantly
Market expectations for Federal Reserve policy have shifted dramatically. Traders are no longer anticipating rate cuts until the second half of 2027, compared to earlier projections of two cuts in 2026.
Recent data indicated that the U.S. labor market remained stable in March. However, economists warn that a prolonged Middle East conflict could pose significant downside risks.
ING economist James Knightley highlighted that employment growth has effectively stagnated, with only 260,000 additional jobs created over the past year despite a strong economic backdrop.
He noted that ongoing geopolitical uncertainty is unlikely to encourage businesses to increase hiring in the near term.
Yen Weakness Raises Intervention Concerns
The Japanese yen weakened to 159.77 per dollar, staying close to a 21-month low. Market participants are closely watching for potential intervention from Japanese authorities.
Finance Minister Satsuki Katayama recently signaled that the government is prepared to act against excessive currency volatility, emphasizing that market fluctuations have intensified.
Doubts Over Japan’s Ability to Support the Yen
Despite official warnings, many investors remain skeptical about the effectiveness of any intervention. Strong demand for the U.S. dollar, driven by geopolitical uncertainty, continues to put pressure on the yen.
Since the conflict began, the yen has declined by approximately 1.5% and remains near the psychologically important 160 level.
Speculative positioning has also increased, with short yen positions reaching $5.7 billion, the highest level since July 2024, when Japan last intervened in foreign exchange markets.
