The US Dollar (USD) edged higher across major currencies on Thursday, supported by persistent geopolitical tensions in the Middle East, particularly the ongoing closure of the Strait of Hormuz, a critical passage for nearly 20% of global energy supply [1][2][4][5][6]. The closure, enforced by Iran in response to a US blockade on Iranian sea ports, has led to surging oil prices, with WTI crude trading above $93.50 and reaching as high as $95.80, the highest level in a week [2][4]. Iranian military groups reportedly fired on three ships in the Strait and escorted two to Iranian waters, further escalating tensions [2].
US President Donald Trump announced an extension of the ceasefire with Iran, stating there is 'no time pressure' and 'no time frame' for ending the conflict, while Iran's parliament speaker, Mohammad Bagher Ghalibaf, declared that reopening the Strait is 'impossible' due to ongoing Israeli actions [1][6]. Despite the ceasefire extension, the closure of Hormuz continues to disrupt energy markets and global trade [1][2][4][6].
The stronger US Dollar was reflected in currency markets, with the USD showing the largest gains against the New Zealand Dollar (NZD), up 0.26% to 0.29% depending on the source [1][5]. The USD/INR pair surged to 94.15, its highest in over a week, as higher oil prices pressured the Indian Rupee (INR), which is sensitive to energy costs due to India's reliance on oil imports [2]. Foreign Institutional Investors (FIIs) turned net sellers in Indian equities, offloading Rs. 5,057.28 crore so far this week, amid concerns over lower corporate earnings projections linked to elevated oil prices [2].
Commodity markets also reacted sharply: Silver (XAG/USD) plummeted nearly 2.3% to around $76.00, as rising oil prices stoked global inflation expectations and diminished demand for non-yielding assets like silver [4]. The US Dollar Index (DXY) posted a fresh weekly high near 98.70, further weighing on precious metals [4].
Other major currency pairs reflected the risk-off sentiment. GBP/USD remained subdued, pressured by a stronger USD and expectations of a decline in the UK Services PMI from 50.5 to 50.0, with traders citing Middle East tensions and higher energy prices as key factors [3]. NZD/USD posted moderate losses, with the pair rangebound between 0.5870 and 0.5930, as traders avoided large positions amid the uncertain geopolitical backdrop [5]. The Canadian Dollar (CAD) traded flat against the USD around 1.3670, as surging oil prices provided some support to the commodity-linked Loonie, but traders awaited US PMI data for further direction [6].
Looking ahead, markets are focused on the upcoming S&P Global US PMI releases, with expectations for a slight improvement in Manufacturing PMI to 52.5 and Services PMI to 50.0 [1][6]. Analysts suggest that stronger-than-expected PMI data could further underpin the USD, especially as higher oil prices are seen as boosting US inflation expectations and reducing the likelihood of Federal Reserve rate cuts this year. According to the CME FedWatch tool, the probability of the Fed holding rates steady at 3.50%-3.75% in December is 76.8% [4]. A Reuters survey indicated that 56 out of 103 economists expect the Fed to keep rates unchanged at least through September [3].
CONCLUSION
The closure of the Strait of Hormuz has triggered a surge in oil prices, strengthening the US Dollar and pressuring risk-sensitive currencies and assets. Market sentiment remains cautious as investors await key US PMI data and monitor ongoing geopolitical developments. Elevated energy prices and persistent tensions in the Middle East are likely to keep volatility high across global markets in the near term.