The ongoing conflict between the United States and Iran has intensified, with Iran rejecting a 15-point peace plan proposed by the US and refusing direct negotiations while bombings continue [2][5]. Tehran's demands for ceasefire talks include a new order in the Strait of Hormuz, transit fee collection, guarantees against war resumption, and an end to Israeli strikes on Hezbollah, which US officials described as 'ridiculous and unrealistic' [2]. The closure of the Strait of Hormuz for the fourth consecutive week is disrupting energy shipments and keeping oil supply constrained [2][4][5].
This escalation has triggered renewed risk aversion in global markets. The US Dollar is pushing higher against most major currencies, including the Pound Sterling and Japanese Yen, as investors seek safe-haven assets [1][2][5]. The US Dollar Index (DXY) trades firmly near Wednesday’s high around 99.70 [2], and USD/JPY has extended gains above 159.50, rebounding from Monday’s lows at 158.00 [5]. The Pound Sterling edged down to near 1.3350 against the USD during the European session, reflecting diminished risk appetite [2][3]. S&P 500 futures are down 0.7% to near 6,545 [2].
WTI Crude Oil is trading around $92.05, up 1.73% on the day, supported by the high geopolitical risk premium and ongoing uncertainty in the Middle East [4]. The effective closure of the Strait of Hormuz and pressure on Iranian energy infrastructure are structurally supporting oil prices, though the strong US Dollar is limiting further upside [4]. Rising energy prices are expected to reignite inflationary pressures, prompting markets to consider a more restrictive stance from the Federal Reserve [4]. Analysts from OCBC Bank note that Japan’s large dependence on Middle Eastern energy imports is worsening its terms of trade and fiscal stability, offsetting the Yen’s traditional safe-haven status [5].
On the monetary policy front, Bank of England Deputy Governor Sarah Breeden warned that the current energy shock is very different from 2022 and will impact inflation and employment in the UK [2][3]. She emphasized the need for more data before any policy action, stating, 'Will know more on balance of risks and scale and duration of shock by April meeting' [3]. No immediate reaction was observed in GBP/USD following her comments [3]. Meanwhile, the Bank of Japan discussed the need for further monetary tightening amid rising inflation, but provided no significant support to the Yen [5].
Forward-looking statements highlight continued uncertainty. BBH’s Elias Haddad argues that until the 'fog of war' clears, USD risks remain skewed to the upside, driven by dollar funding needs in periods of financial market stress [1]. US officials are expected to step up efforts to manage risk sentiment, but Iran’s response to US de-escalation pivots will determine whether peak risk aversion is behind or still ahead [1]. Investors remain cautious, awaiting clearer geopolitical developments before making aggressive bets [4].
CONCLUSION
The escalation of the US-Iran conflict has driven a surge in the US Dollar and oil prices, while global equities and risk assets face renewed pressure. Persistent uncertainty and disrupted energy flows are fueling inflation concerns and prompting cautious market behavior. Until geopolitical tensions ease, upside risks for the Dollar and oil remain, with central banks and investors closely monitoring developments.