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Geopolitics · Inflation · Safe-Haven · US Dollar
The US Dollar Index (DXY) surged 0.55% to a five-week high of 99.09 on Tuesday, extending Monday's gains, as escalating conflict in the Middle East, specifically Iran's closure of the Strait of Hormuz, fueled safe-haven demand and stoked inflation fears.
Iran's Revolutionary Guard declared the Strait of Hormuz closed following US and Israeli strikes, effectively halting tanker traffic through a chokepoint that carries roughly 20% of global oil consumption. Brent crude prices surged to around $79 per barrel, reaching their highest level since mid-2025, intensifying concerns about a fresh inflationary impulse.
This inflation outlook complicates the Federal Reserve's easing timeline, with the Fed currently holding rates at 3.50% to 3.75%. The January Federal Open Market Committee (FOMC) minutes revealed discussions among officials about potential rate hikes if inflation persists above target.
The Institute for Supply Management (ISM) manufacturing report for February came in stronger than expected at 52.4, and its prices paid sub-index jumped to a three-and-a-half-year high. Despite market expectations for two 25 basis point rate cuts this year, rising energy costs and sticky producer prices challenge this outlook.
Technically, the DXY broke out of its 97.00-98.50 consolidation range, reclaiming the 50-day exponential moving average and testing the 200-day EMA at 99.15, with 100.00 as the next upside objective.