U.S. Dollar Trends and Scenarios Amid Iran Conflict

As of March 10, 2026, the U.S. dollar is trading less like a simple interest-rate story and more like a geopolitical shock absorber. Front-month ICE U.S. Dollar Index futures rose from 96.37 on February 11 to 99.70 on March 9, then eased to about 98.84 on March 10. Reuters also reported that the dollar index jumped nearly 1% on March 2, its best day in seven months, and was up 1.5% for the week by March 5 as the conflict escalated.

What makes that move important is where it started. Reuters reported that the dollar index lost almost 10% in 2025, its worst annual performance since 2017, and investors had built their largest bearish dollar position since 2021 before the Middle East shock forced a squeeze. Essentially, traders were leaning against the dollar right before war headlines, oil stress, and haven demand pulled them back into it.

The main transmission channel is oil, not fear by itself. The U.S. Energy Information Administration says the Strait of Hormuz handled 20 million barrels per day in 2024, about 20% of global petroleum liquids consumption, with very limited alternative routes. Reuters reported that traffic through the strait had fallen 97% since the war began on February 28, Brent briefly surged close to $120 a barrel on March 9, and then oil plunged about 15% on March 10 after renewed talk of de-escalation. That is exactly the kind of shock that can reprice inflation, rates, and currencies in hours rather than weeks.

The dollar also benefits because the U.S. is more insulated from an energy shock than many of its peers. EIA says the United States produced more energy than it consumed in 2024 and exported 9.3 quadrillion BTUs more energy than it imported, the highest net export surplus on record. Separate EIA data show imports accounted for just 17% of U.S. domestic energy supply in 2024. That does not make America immune to higher gasoline prices, but it does help explain why an oil shock can hit Europe and many emerging markets harder than the U.S. on a relative basis.

The second channel is the Federal Reserve. January 2026 FOMC minutes show some participants thought rates should stay steady for some time until there was clearer evidence that disinflation was back on track. In a March 6 speech, Cleveland Fed President Beth Hammack said inflation was still too high and that her base case was for policy to remain on hold for quite some time; in a Reuters interview the same day, she added that if inflation does not improve later this year, tighter policy may have to be considered. Reuters also reported that markets cut the implied chance of a June rate cut from roughly 50% to about 25% after the conflict intensified.

Recent price action suggests the dollar is trading in two stages. Stage one is the classic risk-off move: on March 9 the euro fell to a more-than-three-month low of $1.1505, while the dollar hit a six-week high against the yen. Stage two is fast retracement whenever traders believe the conflict may stay contained or end sooner than feared: after Trump said the war was “very complete,” the dollar erased gains, and by March 10 Reuters reported the dollar index was down 0.1% at 98.74 as oil cooled and risk appetite improved.

My read is that this is not yet a clean, long-duration dollar bull market. It looks more like a geopolitical risk premium layered on top of a cautious Fed and a crowded short-dollar setup. That matters because premiums built on conflict risk can vanish quickly if oil flows normalize, while a rates-driven trend tends to last longer. The market is telling us that, for now, the dollar still works as a haven when the shock comes from outside the U.S., especially when that shock runs straight through oil.

If shipping through Hormuz starts to normalize and Brent follows the EIA’s softer later-2026 path, the dollar would likely give back part of its March spike, especially against the euro, sterling, and other currencies that were hit mainly by the oil shock. The evidence is already on the screen: when markets started to believe the conflict might end faster than expected, oil dropped sharply and the dollar lost intraday momentum. In this outcome, USD strength probably fades from “crisis bid” back toward “Fed-and-growth debate.”

If attacks continue but the war remains regionally contained, the dollar probably stays firm because haven demand remains alive and the oil premium keeps the Fed cautious. That would be a difficult backdrop for many energy-importing economies and for parts of emerging-market FX. Reuters reported that global ex-U.S. equities and emerging-market assets reversed sharply after the conflict began, while EIA said Brent is expected to stay above $95 per barrel over the next two months. At the same time, some oil-linked currencies may prove more resilient than Europe-facing FX; Reuters noted the Canadian dollar has been among the strongest G10 currencies since the conflict started.

This is the most dollar-bullish in the first move and the most complicated after that. Wood Mackenzie told Reuters that current Gulf supply losses could push oil to $150 a barrel, with $200 not impossible in 2026. Aramco warned on March 10 that prolonged disruption in Hormuz would have catastrophic consequences for oil markets and the global economy. In that kind of shock, the first reaction would probably be a stronger dollar, tighter financial conditions, and a larger inflation scare. But the second-round outcome is murkier: if oil stays extremely high long enough to create a broader stagflation shock, the dollar’s 2026 gains could become less straightforward because it came into this episode after a near-10% decline in 2025 and with some of its haven credibility already under debate.

For now, the market’s message is simple: the dollar rises when the Iran war threatens oil flows, and it softens when traders see a believable off-ramp. The cleanest way to track the next move is to watch three things together: shipping through Hormuz, Brent crude, and Fed cut pricing. If all three cool down at once, the dollar likely gives back more of its recent gains. If oil stress persists and the Fed stays defensive, USD strength can last longer than many traders expected at the start of the year.

For retail traders using tools like Investorean, the real edge here is not guessing every headline. It is tracking whether oil stress is fading, feeding into inflation expectations, or forcing the market to reprice U.S. rates all over again.