Safe-Haven Dollar Dominates as Iran Conflict Drives Global Risk-Off Positioning
- admin cys
- Mar 18
- 4 min read
A Report by CYS Global Remit Counterparty Sales & Alliance Unit
USD/SGD | 1.2750 – 1.2850 |
Foreign-exchange markets during the week of 9–13 March were dominated by a pronounced flight to safety as the escalating US-Iran conflict pushed investors toward the US Dollar. Heightened geopolitical risk, fears of supply disruptions in the Middle East, and uncertainty surrounding shipping security in the Strait of Hormuz collectively reinforced demand for Dollar liquidity. The resulting move produced broad USD strength across G10 currencies, Asian FX, and emerging markets, while triggering an extreme collapse in the Iranian rial.
Although occasional headlines hinting at possible diplomatic de-escalation produced short-lived intraday pullbacks in the Dollar, the overall market structure remained decisively risk averse. Investors increasingly positioned for a prolonged period of geopolitical uncertainty, with energy price volatility and global trade concerns feeding into the outlook for currencies worldwide. As a result, the Dollar’s late-February rally extended into March and maintained its elevated range throughout the week.
Dollar Strength Anchored by Geopolitical Risk and Energy Uncertainty
At the macro level, the defining theme for the week was the persistence of safe-haven demand for the US Dollar. The US Dollar Index (DXY), which measures the greenback against a basket of major currencies, had already rebounded sharply from multi-year lows in late January as the Iran conflict intensified. Having traded near 95.5 earlier in the year, the index surged toward the 99–100 range by early March, reflecting the rapid repricing of geopolitical risk across global markets.
During the 9–13 March trading window, the Dollar largely consolidated within this higher range. Markets reacted sensitively to developments surrounding the security of shipping routes through the Strait of Hormuz, a vital corridor responsible for roughly one-fifth of global oil trade. Any perceived threat to maritime transit has the potential to trigger energy price spikes and broader economic disruptions, reinforcing demand for safe-haven assets. Currency strategists broadly agree that the Dollar’s strength will remain closely tied to developments in the Middle East. If uncertainty persists regarding energy supply chains and regional stability, investors are likely to maintain defensive positioning. In practical terms, this means continued support for the Dollar through reserve-currency flows, liquidity demand, and portfolio hedging.
Within the G10 currency complex, the Euro remained under persistent downward pressure throughout the week. EUR/USD traded near the 1.16 handle, repeatedly testing levels seen earlier in March. Intraday commentary during European sessions highlighted a gradual drift lower toward 1.1615 as investors favoured the Dollar amid escalating geopolitical tensions.
The Euro’s vulnerability was amplified by concerns over Europe’s energy exposure. Any sustained increase in oil prices resulting from Middle Eastern instability carries greater macroeconomic implications for the Eurozone than for the United States. Higher energy costs could weaken industrial activity and compress growth expectations across the region, making the Euro relatively less attractive in a risk-off environment. Technically, the pair had already broken below several key support levels earlier in the month, including the widely watched 200-day moving average. Some analysts now suggest that if the conflict persists and energy prices remain elevated, the Euro could face further downside toward the 1.10–1.12 range over the medium term.
Other major currencies showed broadly similar patterns. Sterling experienced episodic declines against the Dollar, at one point falling roughly 0.8% in a single session as global risk sentiment deteriorated. Even traditional safe-haven currencies struggled to outperform the greenback: the US Dollar gained around 0.5% against the Swiss franc during one session despite the franc’s defensive characteristics.
Asia and Emerging Markets Face Dollar Pressure as Carry Trades Unwind
Beyond the G10 complex, the impact of geopolitical risk was particularly visible across Asian and emerging-market currencies. Regional FX markets broadly weakened against the Dollar during the week as investors adjusted expectations toward a stronger USD environment for the first half of 2026.
Research updates from major banks suggest that the conflict has effectively “front-loaded” the Dollar’s strength into the near-term outlook for Asia. The prospect of sustained energy price volatility poses challenges for many Asian economies that rely heavily on imported fuel, thereby increasing vulnerability to external shocks.
Within the region, oil-sensitive currencies such as the Indian rupee (INR), Philippine peso (PHP), South Korean Won (KRW), and potentially the Thai Baht (THB) have been identified as particularly exposed to rising energy costs. In contrast, currencies such as the Malaysian Ringgit (MYR) and offshore Chinese Yuan (CNH) may display relatively greater resilience due to structural factors including commodity exposure and policy buffers.
Even in cases where daily spot movements appeared modest, market participants noted a broader shift in forecast profiles. Dealers reported consistent underlying demand for Dollars across Asian trading sessions during the week, reflecting institutional hedging activity and repositioning toward a higher USD/Asia trajectory over the coming quarters.
Emerging markets more broadly faced additional pressure from the unwinding of carry trades. The sharp increase in FX volatility triggered by the conflict forced many investors to reduce exposure to high-yielding emerging-market currencies, particularly where leverage or risk-management constraints were involved. In several instances, profitable carry positions and associated options structures were liquidated as value-at-risk thresholds were breached.
This process contributed to an initial rout across parts of the emerging-market FX complex earlier in the conflict. Although some stabilisation occurred in early March as oil prices briefly retraced and market sentiment improved, the recovery remained fragile. A widely followed Bloomberg gauge of emerging-market currencies did manage a short-lived rebound, but the broader trend continued to reflect a structurally stronger Dollar environment.
By mid-March, many emerging-market currencies remained weaker relative to their pre-conflict levels. Market commentary suggests that further volatility is likely if geopolitical headlines continue to drive swings in oil prices and global risk appetite.
Taken together, the week’s developments reinforce a central theme in global currency markets: geopolitical shocks can rapidly reshape FX dynamics through safe-haven flows, energy price expectations, and risk-management adjustments across institutional portfolios. Until markets gain greater clarity regarding the trajectory of the US-Iran conflict and the security of global energy supply routes, the Dollar’s conflict-driven strength is likely to remain a defining feature of the FX landscape.
Sources
