Why is the dollar surging while everything else drops? If you trade currencies, that question keeps you up at night. And right now, the answer is war.
On February 28, 2026, the US and Israel struck Iran. Iran closed the Strait of Hormuz. Oil jumped past $126 per barrel. The IEA called it the largest oil supply disruption in history.
In just three weeks, EUR/USD fell from $1.19 to $1.156. The dollar surged. The yen weakened. European gas prices nearly doubled.
This is not normal market movement. This is geopolitics rewriting currency trends in real time. Trade wars, military conflict, and central bank reactions are all colliding at once.
If you trade forex, you need to understand these forces. This article breaks down what is happening and why each major currency is moving the way it is.
Key Takeaways
- The Iran conflict closed the Strait of Hormuz, disrupting 20% of global oil supply and sending Brent crude past $126 per barrel.
- The US dollar surged as a safe haven, with the DXY jumping from 96 to above 101 in March 2026.
- The euro dropped to $1.156 as Europe faces a severe energy crisis with gas storage at just 30%.
- The ECB paused rate cuts and may now hike rates for the first time since 2023 due to surging energy costs.
- ABN AMRO still forecasts long term dollar weakness, projecting EUR/USD at 1.18 within 12 months once the conflict cools.
The Iran Conflict Changed Everything
Before February 2026, the dollar was weakening. It had dropped 11.5% in the first half of 2025. Most analysts expected continued decline in 2026.
Then bombs fell on Iran. And markets flipped.
Iran declared the Strait of Hormuz closed on March 4. This waterway handles roughly 20 million barrels of oil per day. Gulf producers started shutting wells within days.
Goldman Sachs estimated a $14 per barrel risk premium. The Dallas Fed projected oil could hit $98 WTI if the closure lasts one quarter. In reality, Brent briefly topped $126.
When oil spikes, the dollar rises. Investors flee to US assets. This pattern has repeated in every Middle East crisis since the 1970s.
How Each Major Currency Is Responding
Not every currency reacts the same way to war. Here is what is happening right now.
| Currency | Direction in March 2026 | Key Driver |
| US Dollar (DXY) | Up sharply | Safe haven demand, oil shock |
| Euro (EUR) | Down to $1.156 | Energy crisis, ECB policy freeze |
| British Pound (GBP) | Weakening | UK inflation expected above 5% |
| Japanese Yen (JPY) | Under pressure | Japan imports 70% of oil via Hormuz |
| Chinese Yuan (CNY) | Relatively stable | China has Iran oil access, large reserves |
| Swiss Franc (CHF) | Gaining | Classic safe haven flow |
Sources: Trading Economics, Cambridge Currencies, MUFG Research, ABN AMRO
The Dollar: Safe Haven or Overvalued?
The dollar is doing what it always does in a crisis. It is rising because the world needs safety.
Cambridge Currencies reports the DXY surged from 96 to above 101 in March. The Fed is holding rates at 3.75%. That rate advantage pulls capital toward the US.
But here is the tension. Before the conflict, the dollar was already overvalued. ABN AMRO’s research shows the dollar is overvalued by 17% against the euro on a purchasing power basis. Against the yen, the overvaluation is 40%.
If the Iran conflict resolves quickly, dollar strength may fade fast. If it drags on, the safe haven trade continues.
Europe’s Energy Nightmare Returns
The euro is the biggest loser so far in 2026.
European gas storage sat at just 30% capacity after a harsh winter. The Hormuz closure cut off Qatari LNG. Dutch TTF gas benchmarks nearly doubled to over 60 EUR/MWh.
The ECB responded by pausing planned rate cuts on March 19. It raised inflation forecasts and cut growth projections. Markets now price at least two ECB rate hikes in 2026.
This is a complete reversal from late 2025. Back then, analysts expected ECB easing. Now the central bank may tighten into a potential recession.
Rabobank’s global outlook warns of stagflationary pressures. Growth slows while inflation rises. That is the worst possible environment for the euro.
Trade Wars Still Simmer in the Background
The Iran conflict dominates headlines. But trade friction quietly shapes currency trends too.
- US tariffs on China remain elevated. The Supreme Court struck down some IEEPA tariffs in February, but Section 122 tariffs of 10% to 15% still apply.
- China is retaliating with export controls on rare earths, batteries, and clean tech components.
- Europe faces tariff pressure from both sides. US trade policy shifts weekly. Chinese surplus goods flood European markets.
- De-dollarization is slow but real. Central banks are diversifying reserves away from the dollar. The OMFIF 2025 survey showed plans to increase euro holdings.
- Stablecoin regulation in the US is now being used as a geopolitical tool, according to Rabobank.
These forces weaken the dollar over time. But in a crisis, short term flows still favor the greenback.
What Traders Should Watch Next
The next 90 days will define currency trends for the rest of 2026.
If Iran and the US reach a deal, oil drops fast. The dollar weakens. The euro and yen recovered. Morgan Stanley notes a 10% oil price rise adds 0.35% to US inflation within three months. A drop would do the opposite.
If the conflict drags on, expect continued dollar strength. European currencies will struggle. Asia-Pacific currencies face pressure from high energy import costs.
Watch these three signals closely. First, the Strait of Hormuz shipping traffic. Second, ECB and Fed rate decisions in April. Third, any US-China trade escalation.
Frequently Asked Questions
1. How does the Iran conflict affect crypto markets?
Crypto initially sold off alongside stocks in early March. Bitcoin dropped as risk assets fell broadly. However, some traders are using Bitcoin as a hedge against both dollar and euro weakness. Stablecoins like USDT are seeing higher demand in countries most affected by the oil shock. The relationship between geopolitics and crypto is still evolving.
2. Could the euro overtake the dollar as the global reserve currency?
Not anytime soon. The dollar still makes up roughly 58% of global reserves. But reserve managers are slowly adding euros. The OMFIF 2025 survey confirmed this trend. The euro benefits from being seen as less politicized than the dollar. Over a decade, the shift could become meaningful.
3. Is it safer to trade forex or sit out during geopolitical crises?
It depends on your skill level and risk tolerance. Volatility creates opportunity but also danger. Professional traders reduce position sizes during crises. They tighten stop losses and avoid overleveraging. If you are a beginner, sitting in cash or reducing exposure is the safest move until volatility settles.
Disclaimer: This article is for informational purposes only. It is not financial advice. Currency markets carry significant risk. Always do your own research before trading.
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