The US dollar experienced a rise in value on Monday amid ongoing tensions in the Middle East, particularly between Israel and Iran, following US military actions over the weekend. According to a report, the Dollar Index increased by 0.61% in daily trading to reach 99.31 by 2.45 CEST. Despite this daily gain, the dollar has increased only 0.19% over the month and remains down nearly 9% year-to-date, struggling to recover from losses associated with previous administration policies.
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US President Donald Trump stated that the strikes inflicted “monumental damage” on Iranian facilities, although Iranian officials have downplayed the effects. The UN’s nuclear watchdog has yet to fully assess the damage. Concurrently, Israel continued its offensive against Iran, prompting Tehran to assert its resistance to “bullying and oppression.” Concerns are mounting over a possible closure of the Strait of Hormuz, a critical conduit for approximately 20% of global oil and gas shipments. Market analysts, including those from ING, noted that the dollar’s rebound was anticipated, fueled by US military assertiveness and potential increases in oil prices, which have weakened the euro. Higher oil prices could lead to inflationary pressures, potentially deterring the US Federal Reserve from implementing rate cuts, a scenario that could bolster the dollar’s appeal to investors.
Looking forward, the duration of any blockade of the Strait of Hormuz remains a crucial factor. A prolonged disruption could diminish the appeal of other safe-haven currencies like the euro and yen, allowing the dollar to recover more robustly. Despite the dollar’s recent struggles due to erratic policies from the Trump administration, short-term oil price hikes could impact economies more heavily reliant on oil imports, such as China and Europe, rather than the relatively energy-independent US economy.
