The recent strength of the US dollar has been somewhat outrageous. In early March, the US Dollar Index once surged to 99.68, reaching a new high since last November—this increase is definitely a bit surprising.

The logic behind it is actually quite clear. As tensions between the US and Iran escalated, Iran closed the Strait of Hormuz, causing oil prices to soar. The market then began to re-assess inflation risks. This directly undermined expectations that the Federal Reserve would cut rates within the year. The probability of a second rate cut that the market had originally expected has now fallen to 50%, which provides clear support for the dollar.

But this is not very friendly to other currencies. EUR/USD has fallen to 1.1531, the lowest level since last November. The yen is in even worse shape—USD/JPY is nearing the 158 level. Why is that? Both Europe and Japan heavily rely on energy imports from the Middle East. Once oil prices rise, they face not only inflation pressure, but also pressure on economic growth, so their currencies naturally get pushed down.

I noticed some institutional viewpoints that are quite interesting. ING believes that Europe’s energy dependence will continue to weigh on the euro in the short term unless it sees clear signals that the conflict is being de-escalated. Deutsche Bank also said that the longer the US-Iran conflict drags on, the greater the risk to the euro.

The situation with the yen is somewhat different. Although Japan’s safe-haven attributes have been weakened—despite Japan being an energy importer—Japanese officials seem to have already made preparations for intervention. It is expected that USD/JPY will be contained within the range of 155 to 160.

From a broader perspective, this wave of US dollar appreciation reflects the market’s re-pricing of risk assets. Crypto pairs such as US dollar versus Sol also will be affected; a stronger dollar means relatively tighter dollar liquidity in the crypto market. If you’re interested in following this trend, you can check the relevant trading pairs on Gate to understand how the strengthening of the dollar impacts different assets.