Iran War Boosts The US Dollar, Pressures The Euro And Yen

The US dollar strengthened broadly this week as the escalating Iran conflict drove oil prices higher and reinforced the greenback’s advantage over energy-importing currencies such as the euro and the Japanese yen.

The USD made a new 2026 high this week following the US-Israel attack on Iran.

There are several reasons for the rally. Firstly, the US is an energy exporter and higher oil prices are not as damaging to its economy.

Secondly, inflation fears have led to markets pricing out Fed easing.

Markets are coming to terms with the fact the war in the middle east may drag on for weeks, even months. Stocks have recovered from the drops earlier in the week, but oil has continued higher and is causing volatility in related currency markets. One of the biggest winners has been the US dollar, while the currencies of energy importers such as the EU and Asia have been under pressure.

USD on the Rise

The US dollar made a new 2026 high this week as the war with Iran created several positive drivers.

The fact that the United States now produces more energy than it consumes is a game-changer for the American economy, especially during the current war with Iran.

In the past, a conflict in the Middle East meant energy prices would skyrocket and pressure the economy.

However, because the U.S. is now a major exporter of oil and gas, higher global prices are arguably a positive.

Furthermore, while factories in Germany or Japan are facing record-high power bills, American factories still have access to plenty of domestic fuel.

This keeps the cost of making things lower in the U.S.

Donald Trump and the average American still want lower gas prices so the surge in oil is not entirely welcome, but the situation is better in the U.S. than in many other countries and the dollar is higher because of it.

Another reason for the dollar strength comes from a more hawkish expectation of rates due to the inflationary pressures created by higher oil.

Rate cuts are unlikely any time soon, as ING explain:

“We are raising our dollar forecasts for the first half of the year on the view that energy prices will likely be higher than they were before the crisis and that the inflationary risk will delay – but not derail – the Fed easing cycle. “

With the Iran war now in its fifth day, it does not look like there will be a swift resolution and the rally in oil could continue.

Over the last twenty-four hours military operations have expanded beyond specialized strikes into a broader regional war.

Following the confirmed death of Supreme Leader Ayatollah Ali Khamenei earlier this week, the newly formed Iranian provisional military council has intensified its retaliatory campaign against American interests and regional partners.

Overnight, US Central Command reported multiple ballistic missile salvos targeting the Al-Udeid Air Base in Qatar and logistics hubs in the United Arab Emirates.

While the Pentagon’s sophisticated missile defense systems intercepted a majority of the incoming projectiles, several impacts were recorded, leading to additional American casualties and significant damage to runway infrastructure.

This marks the most direct and sustained bombardment of U.S. regional headquarters in modern history.

In response to these strikes, President Trump authorized a secondary wave of Operation Epic Fury, focusing on the complete “darkening” of the Iranian power grid and communication networks.

Reports from within Tehran and major urban centres like Mashhad indicate that internet connectivity has plummeted to near-zero levels, and massive blackouts are hampering the regime’s ability to coordinate its internal security forces.

The U.S. Air Force has shifted its focus from nuclear targets to “dual-use” infrastructure, striking bridges, fuel depots, and government ministry buildings.

The maritime situation in the Strait of Hormuz has reached a breaking point within the last day.

The Iranian Navy has reportedly deployed advanced sea mines across the narrowest points of the waterway, effectively turning a de facto blockade into a physical one.

This has trapped dozens of commercial tankers and triggered a global shipping crisis, with Lloyd’s of London declaring the entire Persian Gulf a “war risk zone,” making insurance premiums virtually unaffordable for any remaining traffic.