The US Dollar Index (DXY) hovered near 98.20 late Thursday, staying firm as traders weighed escalating geopolitical tensions, a partial blockade of the Strait of Hormuz and renewed uncertainty over energy supply routes.
Geopolitics, Hormuz toll plan and oil flows
Reports from shipping lanes showed a partial blockade in the Strait of Hormuz, with some tankers managing to pass while others remained stalled. Tehran proposed a new oil transit toll to be paid via its domestic banking system, a move that deepened market unease and raised fresh questions over energy trade financing.
Washington has not confirmed any direct talks with Iran, though President Trump signaled a possible meeting over the weekend aimed at easing tensions around the key oil chokepoint.
The Strait of Hormuz handles roughly 21% of global daily petroleum consumption, about 21 million barrels per day. Vessel tracking data highlighted the severity of the disruption: average daily tanker transits have plunged from about 27 in the first two months of the year to a three‑day average of just three ships.
This bottleneck has stoked fears of a looming supply shock, feeding higher oil prices and raising the risk of broader inflation pressures.
Middle East ceasefire faces early doubts
A ten‑day ceasefire between Israel and Lebanon, due to start Thursday at 5:00 pm EST, was met with immediate skepticism. Prime Minister Benjamin Netanyahu confirmed that Israeli forces would remain in the South Lebanon buffer zone, while Hezbollah warned that any continued military presence could trigger a renewed armed response.
Traders remained cautious over whether the agreement can hold, as any breakdown risks further destabilizing the region and energy routes.
Dollar edges higher on safe‑haven demand
The US dollar continued to attract safe‑haven flows in this environment of elevated geopolitical risk. Late Thursday, the Greenback showed:
- a gain of 0.45% against the Australian dollar
- a rise of 0.20% versus the British pound
- a decline of 0.29% against the Japanese yen
- an increase of about 0.15% versus both the euro and the Canadian dollar
The dollar’s role as the primary global reserve currency has been reinforced, as traders moved toward dollar‑denominated assets amid the flight to safety.
Major currency pairs: dollar strength caps recent rallies
The euro and pound retreated as the dollar firmed and risk appetite weakened:
- EUR/USD traded slightly lower near 1.1780, snapping an eight‑session winning streak as stronger dollar demand and geopolitical strains weighed on the pair.
- GBP/USD held near 1.3530, pressured by broad risk aversion and limited appetite for European currencies.
In Asia:
- USD/JPY hovered around 159.10, with the dollar supported by steady US Treasury yields. The yen’s usual defensive appeal was muted, lagging despite persistent anxiety over energy supply.
- The Australian dollar stayed on the defensive near 0.7160, dragged lower by Middle East unrest and uncertainty around global oil logistics. Other commodity‑linked currencies also weakened as traders braced for potential short‑term trade disruptions.
Oil and gold react to supply fears and ceasefire hopes
Energy markets remained tense but stopped short of signaling a full‑blown supply shock:
- West Texas Intermediate (WTI) crude traded near $93.90 per barrel, up slightly on the day. Shipping disruptions through Hormuz, Iran’s proposed toll and the lack of visible diplomatic progress kept prices supported, even as partial tanker traffic eased the most extreme fears.
- Gold held near $4,789 per ounce after recent gains. Hopes for a ceasefire in the Middle East tempered safe‑haven demand, keeping the metal in a narrow range throughout the afternoon as traders waited for further signals from global policymakers.
Rising inflation complicates the Fed outlook
The energy shock threat is feeding directly into inflation expectations. US annual inflation rose to 3.3% in the 12 months through March, up from 2.4% in February, with the jump largely driven by higher energy costs.
This sharp move has complicated the path for the Federal Reserve. Officials who had been considering rate cuts later this year may be forced to keep policy tighter for longer to contain price pressures. Market pricing now reflects a reduced probability of interest rate cuts in 2026, reinforcing support for the dollar, as relatively higher yields make holding the currency more attractive.
IMF meeting in focus
On Friday, the United States will take part in the IMF meeting, where trade disruptions and energy security are expected to feature prominently.
Market reactions are likely to pivot on any new signals regarding:
- the status of shipping through the Hormuz corridor
- the durability of the Israel–Lebanon ceasefire
- the Fed’s tolerance for higher inflation amid geopolitical shocks
Market implications and what to watch
The current backdrop of heightened global tension is tightening financial conditions:
- sustained dollar strength is acting as a headwind for commodities and international equities
- higher oil prices and sticky inflation reduce room for monetary easing
- any escalation in the Middle East or further disruption in Hormuz could trigger abrupt moves across currencies, energy and metals
Traders will be watching closely for either a credible diplomatic breakthrough that could quickly revive risk appetite, or renewed confrontations that would harden the defensive stance dominating global markets.
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