BYCOMFORT OGBONNA
The U.S. dollar is on track to post its biggest monthly gain since July as escalating conflict in the Middle East rattles global financial markets, drives oil prices sharply higher, and heightens fears of a worldwide economic slowdown.
Investors have increasingly turned to the dollar as the most reliable safe-haven asset amid the turmoil. The surge in energy prices, combined with geopolitical uncertainty and market volatility, has pushed most other currencies and assets lower while strengthening the U.S. currency.
Market sentiment shifted slightly during Asian trading hours after a report by The Wall Street Journal suggested that Donald Trump may be open to halting military strikes against Iran without forcing the reopening of the strategically critical Strait of Hormuz. The report, citing unnamed officials, led to a modest decline in crude oil prices during Asian trading. However, the news had little impact on the dollar’s overall strength, which continues to dominate currency markets.
One of the most dramatic currency moves has been in South Korea, where the dollar rose roughly 1% against the Korean won to reach 1,534 won. The level has only been seen during periods of major financial turmoil, including the aftermath of the Global Financial Crisis in 2009 and the Asian Financial Crisis of 1997–1998.
Other major currencies have also weakened. The euro has remained below the $1.15 mark, while the British pound, along with the Australian and New Zealand dollars, has fallen to multi-month lows as investors move funds into safer assets.
In Japan, renewed warnings from government officials about potential currency intervention helped prevent deeper losses for the yen. Still, the Japanese currency remains under pressure and briefly touched its weakest level since July 2024 earlier this week. It was last trading around 159.52 per dollar.
The strength of the dollar has been supported by several factors. The United States’ status as a major energy exporter has insulated it somewhat from the shock of soaring oil prices, while rising U.S. Treasury yields have made dollar-denominated assets more attractive to investors. At the same time, global investors have increasingly moved into cash positions as the conflict has continued.
Asian currencies have borne the brunt of the losses during the past month of turmoil, reflecting the region’s heavy reliance on energy imports and vulnerability to higher oil prices.
Chris Turner, global head of markets at ING, said the dollar’s momentum may continue unless geopolitical tensions ease.
“Barring any clear, conciliatory messages from the Iranian side, it is hard to see the dollar handing back this month’s gains anytime soon,” Turner said.
Safe-Haven Assets Struggle as Oil Shock Ripples Through Markets
Interestingly, several assets that typically benefit during times of uncertainty have also struggled. Government bonds, gold, and traditional safe-haven currencies such as the Japanese yen and Swiss franc have all weakened throughout March.
The surge in crude oil prices toward $100 per barrel has created a shock across financial markets, exposing vulnerabilities in several economies and triggering fears of higher inflation.
The U.S. Dollar Index, which measures the dollar against a basket of major currencies, climbed to its highest level since May during trading on Monday, reaching 100.61. It was last trading near 100.47, putting it on track for a 2.9% rise in March—its strongest monthly performance since July.
Higher energy costs are expected to drive inflation upward globally, and those concerns have weighed heavily on bond markets. Meanwhile, gold prices have declined as investors unwind crowded positions and seek liquidity in cash instead.
Currency dynamics have also been influenced by policy signals from major central banks. In Switzerland, officials have indicated they are prepared to intervene if the Swiss franc rises too sharply, limiting the currency’s traditional role as a safe haven.
The dollar has climbed nearly 4% against the Swiss franc this month, trading around 0.80 francs.
Commodity-linked currencies have been particularly weak. The New Zealand dollar has fallen for six consecutive sessions and is approaching the key psychological level of 57 U.S. cents. The Australian dollar has dropped for eight straight sessions, sliding to a two-month low of $0.6834 and falling about 3.7% for the month.
The British pound has also slipped, hovering just above $1.32 amid the broader strength of the U.S. currency.
Key Economic Data Could Influence Dollar’s Next Move
Despite the dollar’s powerful rally, analysts say upcoming economic data could still influence the currency’s trajectory.
One potential catalyst is U.S. labor market data scheduled for release during the thin trading conditions of Good Friday. With many global markets closed, even modest surprises in employment figures could produce outsized currency movements.
Strategists at Union Bancaire Privée warned that another risk to the dollar rally could come if the relationship between currency markets and equities begins to break down.
Historically, the dollar tends to rise when stock markets fall as investors seek safety. However, analysts caution that this relationship may shift if markets begin pricing in a prolonged conflict with uncertain geopolitical and economic consequences.
“Foreign exchange–equity correlations have been quite stable since the outbreak of the conflict,” the strategists said. “But this could change if markets begin to price in a longer and more unpredictable conflict.”
Meanwhile, investors are also closely watching inflation data in Europe, which is expected to be released later in the day. Analysts anticipate that March inflation will rise above the 2% target set by the European Central Bank, potentially complicating monetary policy decisions as the region grapples with the economic fallout from surging energy prices and global instability.