The US Dollar (USD) has extended its recent gains against major currencies, driven by heightened geopolitical tensions and rising oil prices following the suspension of oil flows through the Strait of Hormuz by Iran. The Indian Rupee (INR) has underperformed, with the USD/INR pair trading near a weekly high of 94.38, marking the fifth consecutive day of INR losses. This weakness is attributed to higher energy prices and renewed foreign investor selling in Indian equities, with foreign institutional investors (FIIs) offloading Rs. 8,311.99 crore over the past four trading days [1]. The US Dollar Index (DXY) is trading near a 10-day high of around 99.00, reflecting broad-based USD strength [1].
The closure of the Strait of Hormuz, which handles nearly 20% of global energy supply, has kept oil prices elevated, with WTI crude holding weekly gains at approximately $95.00. This has particularly impacted economies like India that are heavily reliant on oil imports, further pressuring their currencies [1]. Investors remain skeptical about a quick resolution, as Iran has not agreed to resume peace talks with the US and continues to blame Washington for the blockade of its sea ports. Meanwhile, US military officials are reportedly developing contingency plans should the current ceasefire with Iran collapse [1][2].
The EUR/USD pair has also come under pressure, trading around 1.1680-1.1675, just above a two-week low. The lack of progress in peace talks and the ongoing US naval blockade of Iranian ports have dampened hopes for de-escalation, keeping investors cautious. Elevated crude oil prices have revived inflation concerns and fueled expectations of a hawkish stance from the US Federal Reserve, further supporting the USD and weighing on the EUR/USD pair [2]. Technical analysis indicates that EUR/USD is hovering near the 200-period EMA on the 4-hour chart, with the Relative Strength Index (RSI) near 32, suggesting continued downside pressure. A break below the 1.1648 support could open the way to deeper retracement levels [2].
Looking ahead, the Federal Reserve's upcoming policy announcement is seen as a key market trigger. The Fed is widely expected to keep interest rates unchanged in the 3.50%-3.75% range but may warn of upside inflation risks due to higher energy prices. Investors will closely watch for any signals regarding potential rate hikes later in the year [1][2].
This week, the US Dollar has been the strongest against the Swiss Franc, gaining 0.70%, and has also appreciated 0.52% against the Euro, 0.61% against the Japanese Yen, and 0.18% against the British Pound and Canadian Dollar [2].
CONCLUSION
The US Dollar's strength is being driven by geopolitical risks and surging oil prices, which are weighing on currencies like the Indian Rupee and Euro. Market participants are closely monitoring the Federal Reserve's upcoming policy decision for further direction, with expectations of continued caution amid inflationary pressures. The ongoing uncertainty around the Strait of Hormuz and energy markets is likely to keep volatility elevated in the near term.