MUFG’s Senior Currency Analyst Lee Hardman reports that the US Dollar remains under pressure following a sharp sell-off, which was triggered by the de-escalation of conflict in the Middle East [1]. The Dollar index failed to break above the 100.00 resistance level and retreated to a low of 98.880 yesterday [1]. President Trump’s decision to postpone strikes on Iranian energy infrastructure for at least five days to allow for negotiations has reduced the immediate risk of further damage to energy sites in the region [1]. Iran had previously threatened to retaliate by launching additional attacks on Middle Eastern energy sites [1].
Despite the easing of conflict risk, the Strait of Hormuz remains effectively closed, and unresolved disruptions could result in a significant negative energy price shock for the global economy if not resolved in the coming weeks or months [1]. Hardman emphasizes that ongoing geopolitical uncertainty is keeping foreign exchange markets volatile, with emerging market currencies experiencing greater volatility than G10 currencies [1].
JPMorgan’s measure of one-month EM FX volatility has reached its highest level since last April, following President Trump’s “Liberation Day” tariff announcements, while G10 FX volatility remains below last April’s levels [1]. The market is closely watching whether energy supply through the Strait of Hormuz will normalize, as this will be a key determinant for further market movements [1].
CONCLUSION
The US Dollar has weakened amid reduced conflict risk in the Middle East, but unresolved energy supply disruptions continue to fuel FX volatility, especially in emerging markets. Market participants remain cautious, awaiting resolution of the Strait of Hormuz closure, which could have significant implications for global energy prices and currency markets.