The US dollar traded near its strongest levels in several months on Tuesday as investors braced for a White House deadline that could determine whether tensions around the Persian Gulf deepen further. Traders kept the greenback supported by demand for traditional safe-haven assets while oil stayed above $110 a barrel, reflecting fears that any failure in diplomacy with Tehran could bring fresh disruption to shipping and energy flows.
Market attention was fixed on President Donald Trump’s warning that Iran must agree by Tuesday evening to reopen Gulf shipping routes, including through the Strait of Hormuz, or face attacks on infrastructure. Trump said on Monday that the deadline was final and would not be extended again, hardening the tone after earlier delays. Iran, for its part, signalled that it would not accept terms framed as capitulation, leaving currency, commodity and bond markets trading cautiously through the Asian session.
The dollar’s resilience was most visible against currencies that are usually sensitive to swings in global risk appetite and energy prices. Reuters reported the dollar index remained close to its latest highs, while the yen, euro and sterling hovered near notable lows. Asian currencies also stayed under pressure, with the won and rupiah among those weakened by concern over costlier oil imports and the possibility of wider regional instability.
Oil has become the clearest transmission channel from the conflict to the broader financial system. Brent crude was trading around $110 a barrel and US crude above $113 as the market counted the risk that shipping through Hormuz could remain restricted or face military escalation. The strait typically handles roughly a fifth of global oil and gas flows, making it one of the world’s most important energy chokepoints. That has left import-dependent economies in Asia particularly exposed, even as major producers with alternative export routes have been somewhat better insulated.
Currency markets are also absorbing the policy implications of higher fuel costs. Rising oil prices are reviving inflation worries at a time when central banks had hoped price pressures would continue to ease. In the United States, investors have sharply trimmed expectations for Federal Reserve rate cuts this year as stronger energy costs and supply disruption threaten to keep inflation sticky. Reuters reported that New York Fed data showed global supply-chain pressures in March rose to the highest level since early 2023, reinforcing concern that the Middle East conflict is becoming an economic shock rather than only a geopolitical one.
That backdrop has given the dollar support beyond its haven status. Higher-for-longer US rates tend to favour the currency by widening yield differentials against peers, especially where growth looks fragile. The Bank of Japan warned this week that the fallout from the Middle East conflict could hurt regional economies through pricier imports and disrupted supply chains. IMF Managing Director Kristalina Georgieva went further, saying the war was likely to bring both slower global growth and higher inflation, with the Fund preparing to downgrade its outlook next week even if the disruption eases quickly.
For investors, the central question is no longer only whether Washington follows through on its threat, but whether commercial shipping can move safely through Hormuz whatever the diplomatic outcome. That distinction matters because markets have shown some scepticism about Trump’s repeated deadlines, yet they have been far less willing to dismiss the physical risk to oil and gas supply. Shipping data cited by market participants has shown some traffic returning, but volumes remain below normal and traders say confidence will not fully recover until there is a clearer security guarantee.
The stronger dollar is already spilling into regional foreign-exchange markets. The rupee, after recovering from its record low with support from the Reserve Bank of India, has been pulled in opposite directions by domestic intervention and the external shock from the Gulf crisis. Reuters reported that the currency was expected to stabilise around 93 to the dollar, though traders warned that its room for further gains was limited while oil prices remained elevated and the geopolitical risk premium stayed in place.
Market attention was fixed on President Donald Trump’s warning that Iran must agree by Tuesday evening to reopen Gulf shipping routes, including through the Strait of Hormuz, or face attacks on infrastructure. Trump said on Monday that the deadline was final and would not be extended again, hardening the tone after earlier delays. Iran, for its part, signalled that it would not accept terms framed as capitulation, leaving currency, commodity and bond markets trading cautiously through the Asian session.
The dollar’s resilience was most visible against currencies that are usually sensitive to swings in global risk appetite and energy prices. Reuters reported the dollar index remained close to its latest highs, while the yen, euro and sterling hovered near notable lows. Asian currencies also stayed under pressure, with the won and rupiah among those weakened by concern over costlier oil imports and the possibility of wider regional instability.
Oil has become the clearest transmission channel from the conflict to the broader financial system. Brent crude was trading around $110 a barrel and US crude above $113 as the market counted the risk that shipping through Hormuz could remain restricted or face military escalation. The strait typically handles roughly a fifth of global oil and gas flows, making it one of the world’s most important energy chokepoints. That has left import-dependent economies in Asia particularly exposed, even as major producers with alternative export routes have been somewhat better insulated.
Currency markets are also absorbing the policy implications of higher fuel costs. Rising oil prices are reviving inflation worries at a time when central banks had hoped price pressures would continue to ease. In the United States, investors have sharply trimmed expectations for Federal Reserve rate cuts this year as stronger energy costs and supply disruption threaten to keep inflation sticky. Reuters reported that New York Fed data showed global supply-chain pressures in March rose to the highest level since early 2023, reinforcing concern that the Middle East conflict is becoming an economic shock rather than only a geopolitical one.
That backdrop has given the dollar support beyond its haven status. Higher-for-longer US rates tend to favour the currency by widening yield differentials against peers, especially where growth looks fragile. The Bank of Japan warned this week that the fallout from the Middle East conflict could hurt regional economies through pricier imports and disrupted supply chains. IMF Managing Director Kristalina Georgieva went further, saying the war was likely to bring both slower global growth and higher inflation, with the Fund preparing to downgrade its outlook next week even if the disruption eases quickly.
For investors, the central question is no longer only whether Washington follows through on its threat, but whether commercial shipping can move safely through Hormuz whatever the diplomatic outcome. That distinction matters because markets have shown some scepticism about Trump’s repeated deadlines, yet they have been far less willing to dismiss the physical risk to oil and gas supply. Shipping data cited by market participants has shown some traffic returning, but volumes remain below normal and traders say confidence will not fully recover until there is a clearer security guarantee.
The stronger dollar is already spilling into regional foreign-exchange markets. The rupee, after recovering from its record low with support from the Reserve Bank of India, has been pulled in opposite directions by domestic intervention and the external shock from the Gulf crisis. Reuters reported that the currency was expected to stabilise around 93 to the dollar, though traders warned that its room for further gains was limited while oil prices remained elevated and the geopolitical risk premium stayed in place.
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