DXY Rises Slightly, Hormuz Boosts Safe-Haven Demand
The US dollar index (DXY) strengthened slightly on Monday, hovering around 99.65 in early European trading. The strengthening occurred amid rising geopolitical tensions in the Middle East and market perceptions that the Federal Reserve remains hawkish, keeping the dollar in demand as a defensive asset.
Tensions have re-emerged over the Strait of Hormuz. Iranian President Masoud Pezeshkian said "threats and terror" actually strengthen Iran's unity, after US President Donald Trump issued a 48-hour ultimatum and threatened to "destroy" Iran's power plants if the shipping lanes were not opened. The Iranian military stated that it would close the strait "completely" if the US targets Iranian energy facilities, increasing the risk of escalation that could prolong the conflict.
For the FX market, rising conflict risks tend to support the dollar through safe-haven channels. When uncertainty is high and risk flows are low, demand for the dollar typically strengthens against other major currencies, especially if energy volatility increases.
The surge in oil and energy prices also reinforces the inflation narrative, potentially limiting the scope for interest rate easing. The market believes that energy inflation pressures could make the Fed more cautious, thus extending the "higher for longer" interest rate theme, which is generally positive for the dollar.
The Commonwealth Bank of Australia believes that if the market begins to price in a US tightening cycle, the dollar has the potential to strengthen more broadly against other currencies. In this context, changes in interest rate expectations—not just geopolitical headlines—are the key determinants of the DXY's direction in the short term.
The next data focus is the preliminary release of the US S&P Global Manufacturing PMI for March, scheduled for Tuesday. If the results are weaker than expected, the dollar could potentially correct as the market reassesses the risk of a slowdown, although safe-haven support could cushion the decline if tensions in Hormuz continue to escalate.
Source: Newsmaker.id
