Oil Price "Flash Crash" Drags Down US Dollar! Strait of Hormuz Outlook Shows Turning Point, Dollar Index Posts Largest Two-Month Decline

Bloomberg dollar spot index fell 0.7% on Monday from this year’s high, marking its biggest decline since January 27. US crude oil prices dropped below $100 per barrel as President Trump intensifies pressure on countries to help reopen the Strait of Hormuz—a vital maritime route connecting the Persian Gulf to international markets.

Alex Cohen, a foreign exchange strategist at US Bank, said, “The oil market continues to dominate forex movements. After the weekend, there’s been some optimism about the reopening of the Strait of Hormuz, which has softened Brent crude prices. The dollar, after closing at high levels last week, now appears to be consolidating.”

Since the US and Israel launched strikes on Iran on February 28, energy prices and the US dollar have moved in sync. Some analysts believe this has turned the dollar into a “petro-currency,” partly due to the US’s position as the world’s largest oil producer and the dollar’s role as the main currency in global oil trade.

During the Iran conflict, the correlation between the dollar and oil prices has strengthened.

J.P. Morgan currency strategist Jayati Baladway said, “Until the situation clarifies, especially before we get out of the crisis, we maintain a tactical bullish bias on the dollar.”

US industrial output in February grew modestly, driven by manufacturing and mining sectors expanding for the second consecutive month. Due to recent oil price surges raising inflation concerns, the Federal Reserve is expected to keep interest rates unchanged on Wednesday. The Bank of England, European Central Bank, Bank of Japan, and Reserve Bank of Australia will also make rate decisions this week.

Strategist Brendan Fagan said, “The overall direction of currency movements points to global risk sentiment. If oil prices stabilize and geopolitical tensions ease, the ‘petrodollar’ rally that has dominated markets in recent weeks will fade. Monday’s price action is a reflection of this ‘de-escalation trade.’”

Since the conflict began, all major G10 currency pairs against the dollar have depreciated, with the yen underperforming some of its key peers. Japanese authorities reiterated that they are prepared to act to support their currency if necessary.

Bob Savage, head of Market Strategy and Insights at New York Bank, wrote, “As the Iran conflict continues, oil prices are driving market sentiment, with headlines from the Strait of Hormuz fueling the markets. This week, concerns revolve around how central bank leaders view these issues.”