The U.S. dollar is reclaiming its familiar safe-haven role as tensions between the United States and Iran remain deadlocked, while the peace process shows little sign of meaningful progress. In the April 23 session, the Dollar Index edged up to 98.676, near its highest level since April 13. At the same time, oil prices climbed back above $100 per barrel, while overall market sentiment turned noticeably more cautious.

What matters here is that this is no longer just a currency story. Behind the greenback’s rebound is a broader chain reaction: the Strait of Hormuz remains severely disrupted, global energy supply is under threat, inflation risks are rising again, and expectations for an early Fed rate cut are being pushed further back. Once again, financial markets are being forced into a wait-and-see mode, which investors hate, yet somehow the world keeps serving it up like a recurring ritual.

Tensions in Hormuz Are the Main Driver Behind the Dollar’s Strength

According to Reuters, Tehran seized two vessels in the Strait of Hormuz on April 22, escalating tensions shortly after President Donald Trump announced an indefinite extension of the ceasefire with Iran, but without any clear sign that peace talks would soon resume. The two sides remain deeply divided over the ceasefire, maritime blockades, nuclear issues, and control of the strait, leaving this strategic shipping route effectively choked off in practice.

This matters because Hormuz is not just another name on the map. According to the IEA, around 20 million barrels of crude oil and petroleum products passed through the Strait of Hormuz each day in 2025, equivalent to roughly 25% of the world’s seaborne oil trade. When flows through Hormuz are disrupted, the impact does not stay in the Middle East. It quickly spreads into energy prices, shipping costs, inflation, and global growth expectations.

Reuters has also reported that shipping traffic through Hormuz has repeatedly fallen close to a standstill in recent days. That has pushed oil prices back up and reinforced demand for the U.S. dollar as a defensive asset, as investors become less willing to place strong directional bets on risk markets.

Why Does Rising Oil Support the Dollar?

Normally, when geopolitical stress intensifies, the U.S. dollar benefits from its safe-haven status. This time, however, the support is even stronger because the energy shock threatens to reignite inflation. Reuters reported that oil prices moved back above $100 per barrel as markets concluded that peace talks remained stalled and supply risks had not been resolved.

When oil rises, fuel, transport, and production costs rise with it. That can worsen the inflation outlook, pushing real yields and expectations for higher-for-longer interest rates upward. In the foreign exchange market, this is generally supportive for the U.S. dollar, especially when other regions such as Europe or energy-importing economies in Asia are even more vulnerable to an oil shock.

It is no coincidence that during this session, the euro fell to $1.1699, its lowest level since April 13; sterling slipped to $1.3484; the Australian dollar dropped to $0.7147; and the New Zealand dollar declined to $0.5886. These moves suggest that capital is leaning back toward the U.S. dollar as investors favor defense over risk-taking.

Market Sentiment Has Shifted From “Hope” to “Observation”

Reuters cited DBS strategist Philip Wee as saying that markets are becoming increasingly reluctant to commit to directional trades after the relief rally driven by hopes of a political off-ramp in the first half of the month. In other words, the earlier optimism that the conflict might quickly cool is giving way to a more tense consolidation phase, where volatility remains elevated but capital is unwilling to fully commit to any single scenario.

This is also clearly reflected in the Japanese yen. USD/JPY is trading around 159.56, close to the 160 level that is widely seen as a sensitive threshold for possible intervention by Japanese authorities. At the same time, Reuters reported that the Bank of Japan is likely to leave interest rates unchanged at its April 27-28 meeting, while still signaling that a rate hike as early as June or July remains possible due to inflation pressures linked to the energy shock.

The Fed May Have to Wait Longer Before Cutting Rates

One of the most important consequences of the oil shock is that it is reshaping expectations for U.S. monetary policy. Reuters reported that in its latest survey of 103 economists, the Federal Reserve is now expected to delay rate cuts until at least late 2026 because of renewed inflation risks stemming from the Middle East conflict. The survey also showed that PCE inflation forecasts have been revised upward for the coming quarters.

At the same time, consumer confidence in the United States has fallen to a record low in April. Reuters reported that the University of Michigan consumer sentiment index dropped to 47.6 from 53.3 in March, while 12-month inflation expectations rose sharply. This suggests that rising energy prices are no longer just a commodity-market issue. They are beginning to erode household sentiment and may soon spill over into actual consumer spending.

That is why weekly jobless claims and U.S. PMI data will be closely watched. If these indicators show that high energy costs are starting to weigh on broader economic activity, markets may become even more convinced that the Fed will need to remain cautious for longer.

Conclusion

The U.S. dollar is holding firm at elevated levels not simply because investors “prefer safety,” but because the market is being forced to reprice a whole chain of risks tied to energy, inflation, and monetary policy. U.S.-Iran tensions still have no clear resolution, the Strait of Hormuz remains a strategic choke point in the global oil market, and oil above $100 per barrel is making Fed rate cuts look increasingly distant.

In the short term, the direction of the U.S. dollar will likely remain tightly linked to three variables: the level of escalation in Hormuz, the path of oil prices, and the speed at which the energy shock filters into U.S. economic data. As long as those three factors remain unresolved, markets are unlikely to move out of their current defensive posture. Put simply, when peace remains more of a headline than a reality, the U.S. dollar still has every reason to stay firm.

Source: Reuters