Dollar Holds Near Recent Highs as Markets Watch Deadline for Iran to Reopen Strait of Hormuz

BY COMFORT OGBONNA

The U.S. dollar hovered close to its recent highs on Tuesday as global markets closely watched a looming deadline set by the United States for Iran to reopen the Strait of Hormuz to international shipping. Traders remained cautious as the deadline approached, with uncertainty surrounding the Middle East conflict driving investors toward the dollar as a traditional safe-haven asset.

Tensions in the region have escalated after Iran closed the strategic waterway, one of the world’s most critical routes for oil shipments. The closure has sent energy prices sharply higher and increased concerns about global supply disruptions. As a result, investors have turned to the dollar for safety, pushing the currency higher, particularly across Asian markets where energy costs and geopolitical risks weigh heavily on economic outlooks.

Despite the tense backdrop, expectations that a diplomatic breakthrough or last-minute deal could emerge over the Easter holiday period prevented a stronger rally in the dollar. Still, markets remained highly nervous, and few traders were willing to bet against the U.S. currency ahead of the 8 p.m. Eastern Time deadline set by U.S. President Donald Trump for Iran to reopen the Strait or face potential military strikes targeting its infrastructure.

The Japanese yen slipped to 159.80 per dollar, remaining close to levels that have not been seen for decades and that previously prompted intervention by Japanese authorities in 2024. Currency traders said positioning in the market reflected caution rather than strong conviction, with many investors maintaining long dollar positions in case the conflict escalates further.

Brent Donnelly, president of Spectra Markets, noted that markets appear positioned for the possibility of increased tensions but remain restrained by strong performance in other assets. According to him, the market has built positions in the dollar in anticipation of further escalation, but rising stock markets, stable gold prices, and steady trading in offshore Chinese yuan have helped limit stronger gains in the U.S. currency.

He added that the current geopolitical environment makes it extremely difficult to form confident predictions. Market participants are largely waiting to see how events unfold as the deadline approaches, while closely monitoring any military developments involving Iran, the United States, or Israel.

President Trump intensified concerns on Monday by warning that Iran could be defeated in a single night if necessary. He said the United States could launch attacks against Iranian power plants and bridges, suggesting that such action might occur soon. His comments dismissed concerns about potential war crimes or the risk of alienating the Iranian population, adding further uncertainty to an already volatile geopolitical situation.

The U.S. dollar index, which measures the greenback against a basket of major currencies, edged slightly higher to 100.03. Last week it climbed to 100.64, marking its strongest level since May 2025 as geopolitical risks increased demand for safe assets.

Analysts noted that Iran appears to be using its control of the Strait of Hormuz as a strategic tool in the conflict. Thu Lan Nguyen, head of foreign exchange and commodity research at Commerzbank, said Iran’s leadership has demonstrated an unexpected ability to maintain full control over the waterway. She added that it is becoming increasingly clear that Tehran intends to use this leverage to advance its long-term strategic interests.

Meanwhile, the conflict between Iran and Israel continued to intensify. Both countries exchanged attacks on Tuesday as Tehran refused to reopen the Strait. Israel reported completing a new wave of airstrikes aimed at Iranian government infrastructure. At the same time, missile defense systems intercepted Iranian projectiles over Israel and Saudi Arabia, underscoring the expanding regional tensions.

In currency markets, the euro remained relatively stable at about $1.1535. Traders are increasingly expecting the European Central Bank to raise interest rates three times before the end of the year as policymakers respond to persistent inflation pressures.

ECB officials have also indicated that they are prepared to act if price growth continues to accelerate. Dimitar Radev, a member of the ECB’s governing council, warned that inflation expectations across the euro zone could rise faster than in the past. He said the central bank must remain ready to increase interest rates quickly if signs of sustained inflationary pressure continue to build.

Commodity-linked currencies such as the Australian and New Zealand dollars showed modest weakness. Both currencies had dropped sharply earlier in the conflict when Iranian strikes targeted energy infrastructure in the Middle East in late March. Although they have recovered somewhat from their lows, they remained under pressure, trading around $0.6912 for the Australian dollar and about $0.57 for the New Zealand dollar.

In Asia, several currencies remained under strain. South Korea’s won stayed weak above the psychologically important level of 1,500 per dollar, a range previously seen only during major financial crises such as the global financial turmoil in 2009 and the Asian financial crisis of the late 1990s. Indonesia’s rupiah fell to a record low, while China’s yuan held relatively steady, maintaining the stable tone seen throughout March.

Analysts at Commonwealth Bank of Australia suggested the dollar could soften slightly in the near term if optimism grows that the United States might eventually end its involvement in the conflict with Iran. However, they cautioned that the situation remains complicated due to the involvement of multiple actors.

According to the bank’s analysts, the outcome of the conflict for the global economy and financial markets ultimately depends on whether the Strait of Hormuz remains open. Even if the United States steps back from the conflict, they noted, the waterway may still remain closed if tensions between Iran and Israel continue, meaning that energy markets and global currencies could remain under pressure for some time.