The United States dollar index (DXY) strengthened broadly last week, climbing 1.7% to 100.494, its highest level in around ten months, as escalating tensions in the Middle East drove investors toward safe-haven assets.
Demand for the Greenback has increased amid the ongoing U.S.-Iran conflict, with investors rotating out of several G10 currencies and into the highly liquid U.S. Dollar during a period of heightened geopolitical risk.
At the same time, the disruption of energy shipments through the Strait of Hormuz has pushed crude oil prices sharply higher. Because global oil trade is largely denominated in U.S. dollars, rising energy prices can indirectly increase demand for the currency.
Higher oil prices have also intensified inflation concerns, reinforcing expectations that the Federal Reserve may delay cutting interest rates. Markets have significantly scaled back easing expectations in recent weeks, with traders now pricing in roughly 25 basis points of interest rate cuts by December, according to the CME Group FedWatch Tool.
Earlier forecasts had anticipated more than 50 basis points of easing before the escalation of the Iran conflict.
Economic data released last week painted a mixed picture for the U.S. economy. The personal consumption expenditures index, the Federal Reserve’s preferred inflation measure, rose 0.3% in January on a monthly basis, matching economists’ expectations.
Meanwhile, revised figures showed U.S. economic growth slowed more than previously estimated in the fourth quarter as consumer spending and business investment were revised lower.
Despite the Dollar’s recent gains, longer-term structural pressures remain in focus. Concerns about U.S. fiscal sustainability, rising government debt, and political pressure on Federal Reserve independence continue to underpin debate about the long-term outlook for the currency.
Investor attention will now turn to the Federal Reserve’s policy meeting later this week, where markets will look for guidance through the updated dot plot and Summary of Economic Projections.
Euro struggles as energy costs rise
The Euro remained under pressure against the U.S. dollar, with EUR/USD trading near 1.1432 at the start of the week after losing 1.7% last week to reach seven-month lows.
Analysts say higher energy prices are weighing heavily on the eurozone economy, which relies heavily on imported energy supplies. Rising dollar-denominated energy costs are increasing financial pressure on European companies.
ING analyst Chris Turner noted that EUR/USD has slipped below the 1.1500 level, warning that technical support may be limited until the 1.1390–1.1400 region.
“EUR/USD is just breaking below 1.1500 in early Europe. European corporates with dollar receivables are welcoming the news, but for the vast majority of European corporates, the higher dollar payables of energy costs are painful. Below 1.1470, there is little support until the 1.1390/1400 lows seen in early August last year.”
Turner also highlighted widening sovereign bond spreads across peripheral eurozone countries as an emerging risk for European markets.
“Another trend that bears watching is the widening in peripheral eurozone sovereign spreads.”
“Low volatility and the search for carry had seen the markets drive peripheral spreads to very narrow levels indeed earlier this year – e.g. 50bp for 10-year Greece-Germany sovereign spreads.”
“The current widening probably reflects just de-leveraging, but investors will now be tracking government support measures to protect consumers from higher energy prices and what that means for the fiscal outlook. Again, that could be a bigger story for Europe than for the US.”
“EUR/USD could struggle to make it back above 1.1500/1525 today unless there is some clearly positive news out of the Gulf.”
Even though traders are pricing in a European Central Bank rate hike by July, the Euro has struggled to gain traction as concerns over energy supply disruptions continue to cloud the region’s economic outlook.
Aussie retreats from multi-year highs
The Australian Dollar pulled back after recently reaching multi-year highs, with AUD/USD trading around 0.6996 at the start of the week. The pair had touched a multi-year high of 0.7187 before ending the previous week down 0.7%.
The U.S. dollar found support from a mix of economic data and rising U.S. Treasury yields.
Analysts at MUFG estimate that every $10 increase in oil prices could add around 0.2 percentage points to U.S. inflation, potentially delaying further policy easing from the Federal Reserve.
In Australia, consumer inflation expectations rose to 5.2% in March according to the Melbourne Institute survey, the highest level since July 2023.
The increase has reinforced speculation that the Reserve Bank of Australia could consider raising interest rates again, with markets closely watching the central bank’s upcoming policy meeting this week.
According to the ASX RBA Rate Tracker, as at the 13th of March, the ASX 30 Day Interbank Cash Rate Futures March 2026 contract was trading at 96.07, indicating a 71% expectation of an interest rate increase to 4.10% at the next RBA Board meeting.
Pound hits three-month low
The British Pound weakened against the U.S. dollar, with GBP/USD trading near 1.323 at the start of Monday’s session after falling 1.4% last week to levels not seen since early December 2025.
Rising oil prices linked to the Iran conflict have heightened inflation concerns ahead of this week’s monetary policy meetings for both the Federal Reserve and the Bank of England.
Economists expect the Bank of England to maintain a cautious stance, with many forecasting a “dovish hold” at the upcoming meeting.
Analysts note that oil prices near $100 per barrel could add roughly 0.6 percentage points to the UK’s consumer price index due to higher fuel costs.
Recent economic data from the United Kingdom has also shown signs of stagnation. Monthly gross domestic product growth came in at 0% in January, following a 0.1% increase in December.
In the United States, labour market data remained relatively resilient, with the JOLTS Job Openings report rising to 6.946 million in January from 6.55 million previously.
Yen weakness persists
The U.S. dollar continued to strengthen against the Japanese Yen, with USD/JPY trading around 159.7 after climbing 1.2% last week to multi-year highs.
The pair remains supported by the strength of the U.S. dollar and the wide interest rate differential between the United States and Japan.
At the same time, the persistent weakness of the Yen is drawing increased scrutiny from Japanese authorities. The exchange rate is approaching levels that previously triggered intervention by Japan’s Ministry of Finance.
Finance Minister Satsuki Katayama recently warned that authorities are closely monitoring foreign exchange developments and stand ready to act if excessive volatility emerges.
While such warnings may limit speculative buying in the near term, markets continue to watch the Bank of Japan’s policy outlook closely as the central bank cautiously assesses whether domestic wage growth and inflation can sustain further policy normalisation.
Economic Calendar Week Ahead
On Monday, China will release house price index data, fixed asset investment, industrial production, retail sales and unemployment figures.
Canada will publish housing starts and inflation data, while the United States releases the New York Empire State manufacturing index.
Tuesday brings industrial production and the NAHB housing market index in the United States, along with the ADP employment report, the New York Fed services activity index and the Redbook index.
South Korea will publish import and export price indices, Australia will announce its Reserve Bank interest rate decision and press conference, and the eurozone will release the ZEW economic sentiment index.
On Wednesday, the United States will report pending home sales and producer price index inflation data. South Korea releases unemployment figures, Japan publishes trade balance data, including imports and exports, and the eurozone releases final consumer price index inflation data.
Thursday will be one of the busiest days of the week. Canada will announce its Bank of Canada interest rate decision and press conference.
In the United States, markets will focus on factory orders, jobless claims, building permits and the Federal Reserve’s interest rate decision, press conference and updated economic projections.
Japan releases machinery orders and final industrial production data alongside the Bank of Japan’s interest rate decision.
Australia will publish employment and unemployment figures, while the United Kingdom releases labour market data and the Bank of England interest rate decision.
On Friday, the European Central Bank will announce its deposit facility rate and interest rate decision, followed by a press conference.
The United States will release new home sales and wholesale inventories data. China publishes its one-year and five-year loan prime rates.
The eurozone will report current account and trade balance figures, the United Kingdom releases the CBI industrial trends orders survey, and Canada publishes its new housing price index, producer price index and retail sales data.