Dollar Rises as Iran Tensions Escalate, Oil Surge Boosts DXY Momentum

The U.S. dollar strengthened on Monday, with the dollar index (DXY) up roughly 0.25%, as escalating tensions in the Middle East prompted a shift into safe-haven assets. Reports of missile and drone strikes affecting facilities near Fujairah and wider activity in the Strait of Hormuz pushed energy markets sharply higher and lifted demand for the dollar.

Reuters and other international outlets reported that the United Arab Emirates (UAE) authorities responded to missile and drone threats and that fires broke out in the Fujairah oil zone. The immediate market reaction was significant: benchmark crude prices rallied, with WTI rising more than 4% intraday in several market summaries. At the same time, the U.S. Census Bureau's full monthly release showed that new orders for manufactured goods in March rose about 1.5% month-on-month, a stronger-than-expected print that provided additional, albeit secondary, support to the dollar.

For markets, the combination of a renewed geopolitical premium in oil and upbeat factory orders created a twin-support scenario for the greenback. Investors rotated toward U.S. assets, putting pressure on risk-sensitive currencies and equities while lifting Treasury yields. Energy exporters stood to benefit from higher oil prices, but elevated energy costs also revive inflation concerns that can weigh on global growth prospects.

The broader economic and policy context matters: persistent oil-driven inflation risks could keep central banks, notably the Federal Reserve, on a tighter policy path for longer than markets had priced. That dynamic tends to reinforce dollar strength, especially if geopolitical risk keeps risk premia elevated. Conversely, any rapid de-escalation in the Gulf could reverse some of the safe-haven flows and allow risk assets to recover.

Strategists say near-term direction will hinge on two factors: the evolution of hostilities around the Strait of Hormuz and incoming U.S. economic data that could alter rate-cut or rate-hike expectations. If tensions remain elevated and oil stays bid, the dollar is likely to keep its near-term edge; if diplomacy or operational measures restore shipping confidence, volatility may ease and risk assets could stage a rebound.