Dollar strength after the Iran attack is linked to higher energy prices and changing expectations for US interest rates. Three channels are cited: US energy independence, the energy dependence of Europe and Asia, and the impact of higher oil and gas costs on importers’ external accounts. Europe’s TTF natural gas opened 25% higher, after Brent crude opened 10/12% higher. Prolonged higher prices can worsen terms of trade for currencies such as the euro and yen, which can support the dollar.

Energy Prices And Dollar Support

Fed Fund futures contracts fell 3–4 ticks in Asia on the view that the Federal Reserve may not be able to cut rates twice this year. This comes after the January FOMC signalled less patience with inflation and indicated that rate cuts may depend on clearer disinflation and labour market changes. Higher energy prices could also reverse recent emerging market trends, including stronger EM currencies, local easing cycles, and bond and equity rallies. A reversal in flows would tend to favour the dollar. DXY has traded above resistance at 98.00. A move back to 100 this month is described as possible if there is no early de-escalation in the Middle East. Looking back at the Mideast tensions in 2025, we saw a clear playbook for how an energy shock combined with a hawkish Federal Reserve creates sustained dollar strength. The core logic from that period remains highly relevant for positioning in the coming weeks. These dynamics of US energy independence versus foreign dependence are not short-term trends.

Positioning For A Retest Of Highs

The surge in Brent crude, which jumped over 15% to nearly $105 a barrel in late 2025, severely damaged the trade balances of Europe and Japan. As a net energy exporter, with the U.S. Energy Information Administration confirming record LNG exports that year, we saw the dollar benefit directly. This fundamental advantage for the U.S. economy continues to be a central theme for the currency markets today. This energy shock fed directly into inflation, which remained stubbornly above the Fed’s target, ending 2025 at a 3.4% annual rate according to the Bureau of Labor Statistics. Consequently, the Federal Reserve held rates steady through its last meetings, completely repricing market expectations for cuts. The market is now pricing in a prolonged pause, which provides a strong floor for the dollar. This environment suggests positioning for continued dollar dominance in the near term through derivatives. We should consider buying call options on the Dollar Index (DXY) or dollar-tracking ETFs to capture further upside. Alternatively, strategies that short the euro or yen, such as buying puts on EUR/USD, could perform well as their economies grapple with higher energy costs. We should also be mindful of the continued pressure on emerging markets, which was a key outcome of the dollar’s rise last year. Recent data from early 2026 confirms that capital outflows from these regions are persisting. This makes buying puts on broad emerging market ETFs a relevant hedge or speculative position against further dollar strength. The DXY did in fact break through resistance at 98 and ultimately tested the 100-101 range late last year, validating the initial analysis. Given that the underlying energy and interest rate dynamics have not fully resolved, we believe that using options to bet on a retest of these highs remains a sound strategy for the coming weeks. The conditions that favor a weaker dollar are still not present. Create your live VT Markets account and start trading now.

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