The U.S. dollar weakened on Monday, as the recent rally in the greenback paused while investors focused on rising geopolitical tensions and a series of major central bank policy meetings scheduled for this week.
By 08:46 ET (12:46 GMT), the U.S. Dollar Index, which measures the dollar against a basket of major currencies, had declined 0.4% to 99.97. Meanwhile, the euro strengthened to $1.1473, and the British pound climbed to $1.3278 against the dollar.
Central Bank Meetings in Focus
Several major central banks are set to hold monetary policy meetings this week, including the Federal Reserve, European Central Bank, Bank of Japan, and Bank of England.
Policymakers globally are increasingly concerned about the potential return of inflationary pressures after oil prices surged following the outbreak of the Iran conflict. Energy costs could rise further as the fighting in the Middle East threatens supply routes, particularly through the strategically important Strait of Hormuz located south of Iran.
Approximately 20% of the world’s oil supply passes through the Strait of Hormuz, making it one of the most critical shipping chokepoints in global energy markets.
Rising Oil Prices Raise Inflation Concerns
The risk of higher inflation has prompted speculation that the Federal Reserve and other central banks may need to reassess their interest rate policies. If borrowing costs remain elevated, the United States could continue attracting foreign capital flows, supporting demand for the U.S. dollar.
Earlier bearish sentiment toward the dollar quickly reversed following the escalation of the conflict, as investors sought safe-haven assets.
Meanwhile, Donald Trump has called on international partners to help reopen the Strait of Hormuz. However, speaking to reporters aboard Air Force One on Sunday, Trump did not confirm whether any countries had agreed to assist.
In comments to the Financial Times, Trump also suggested that members of the North Atlantic Treaty Organization should help secure the passage. He warned that failure by NATO members to support the effort could have negative implications for the alliance’s future.
Middle East Crisis Continues to Weigh on Markets
Analysts at ING said in a research note that there had been no improvement in the Middle East situation over the weekend. They also noted that efforts by the U.S. administration to form a naval coalition to reopen the Strait of Hormuz suggest the conflict may not end quickly.
China was also mentioned in the discussion, with Trump indicating he could cancel a planned summit with Xi Jinping if Beijing fails to use its influence to help reopen the shipping route.
According to a report by The New York Times, oil tankers heading to China have continued to pass through the strait, while other vessels have reportedly come under attack.
Meanwhile, The Wall Street Journal reported that the European Union is exploring options to restore shipping traffic through the Strait of Hormuz. By restricting tanker movements through the passage, Iran has effectively disrupted a key energy supply route for major economies, particularly in Europe and Asia.
Oil Prices Remain Elevated
Oil markets experienced volatile trading on Monday. Although Brent crude prices pulled back from earlier gains, the global benchmark remained above $100 per barrel.
At the same time, U.S. West Texas Intermediate (WTI) crude futures also moved lower, reflecting ongoing uncertainty about supply disruptions and the broader geopolitical situation.
