Energy market volatility has been a major driver of currency movements, with economists warning that prolonged geopolitical tensions could further amplify the economic impact on net energy-importing nations. The euro and Korean won have depreciated 2%–3% against the dollar since the start of recent conflicts, while the Indian rupee and Japanese yen have fallen more than 1.5% each. Overall, the dollar has strengthened by more than 1.5% against a basket of major currencies, buoyed both by its safe-haven appeal and the fact that the United States is a net energy exporter.
“Those currencies which are larger net energy importers will likely weaken versus those who are not,” said Joey Chew, head of Asia FX research at HSBC in Singapore.
Brent crude futures spiked more than 10% at one point to $101.59 per barrel, despite a record release of 400 million barrels from global strategic reserves coordinated by the International Energy Agency. Escalating tensions in the Middle East, including Iranian attacks on merchant vessels and transport facilities, have further intensified concerns over supply, with Iran warning that oil prices could reach $200 per barrel.
Major currencies mirrored the turbulence in energy markets. The euro fell 0.2% to $1.154, approaching its lowest level since November, while the yen briefly breached the 159-per-dollar mark, nearing its weakest level since July 2024. The British pound slipped 0.2% to $1.338, hovering just above its year-to-date lows.
Geopolitical developments and trade tensions also contributed to market uncertainty. U.S. President Donald Trump stated that the country was in “very good shape” in its operations in the Middle East, yet intelligence reports indicated that Iran’s leadership remains largely intact despite weeks of bombardment. Concurrently, the Trump administration launched a new trade probe targeting excess industrial capacity in 16 major trading partners, adding further pressure on global markets.
Financial markets also reacted to developments in private credit. Swiss private equity firm Partners Group warned that default rates in the sector could potentially double in the coming years, fueling investor caution.
Amid this backdrop, central banks’ policy outlooks are under reassessment. Traders now anticipate the European Central Bank may raise rates as soon as June, while the U.S. Federal Reserve could delay rate cuts until September, shifting from earlier expectations for a July adjustment.
Rising energy costs, geopolitical uncertainty, and shifting trade dynamics are creating a complex environment for global markets, with the dollar remaining a focal point as investors navigate heightened risk and inflation pressures.