The U.S. dollar hovered near recent highs on Tuesday as global markets braced for a U.S.-imposed deadline on Iran to reopen the Strait of Hormuz or face potential attacks on its infrastructure.
Escalating tensions in the Middle East, particularly around the critical Strait of Hormuz, have disrupted global energy flows and pushed oil prices higher and this uncertainty has driven investors toward the U.S. dollar, widely regarded as a safe-haven currency, strengthening its position especially across Asian markets.
Investor Sentiment And Dollar Demand
Although expectations of a possible diplomatic breakthrough briefly slowed aggressive dollar buying over the Easter period, market sentiment remains cautious. Traders are holding on to dollar positions, with limited selling pressure ahead of key geopolitical developments.
The Japanese yen weakened to 159.80 per dollar, nearing levels that previously triggered intervention in 2024, reflecting broader pressure on global currencies.
“(The) market (is) long USD in case of further escalation, but stocks, gold and CNH trade well and put a lid on dollar gains,” said Brent Donnelly, president at Spectra Markets.
“It’s hard to make any high-confidence predictions here … we wait for 8 p.m. and see what type of attacks Iran and U.S./Israel launch in the meantime.”
Trump said on Monday Iran could be “taken out” in one night “and that night might be tomorrow night.” He promised to destroy Iranian power plants and bridges, brushing off concerns that such actions would be a war crime or alienate Iran’s people.
The U.S. dollar index edged 0.05% higher to 100.03, after reaching 100.64 last week, its strongest level since May 2025.
“The Iranian leadership has demonstrated, surprisingly to many it seems, that it can exercise full control over the Strait,” said Thu Lan Nguyen, head of forex and commodity research at Commerzbank.
“And it is already becoming apparent that Iran intends to utilise this control for its long-term interests,” she added.
Iran and Israel continued exchanging strikes, with Tehran refusing to reopen the Strait of Hormuz.
Israel confirmed airstrikes targeting Iranian infrastructure, while missile interceptions were reported across Israel and Saudi Arabia.
The euro on its part held steady at $1.1535 as traders priced in potential rate hikes by the European Central Bank amid rising inflation concerns.
Asia-Pacific currencies remained under pressure. The Australian and New Zealand dollars traded below recent highs, while the South Korean won hovered around 1,500 per dollar, a level historically associated with financial crises. Indonesia’s rupiah fell to a record low, and China’s yuan remained relatively stable.
“The dollar may ease modestly further in the near term because of optimism the U.S. will ‘end’ the Iran war,” said Commonwealth Bank of Australia analysts.
“However, there are three participants in the war: the U.S., Israel and Iran. What matters for the world economy and currencies is whether the Strait of Hormuz is open. The U.S. leaving the conflict does not reopen the Strait.”
What This Means For The Naira
The sustained strength of the U.S.
dollar, driven by geopolitical tensions and global risk aversion, is exerting significant pressure on the Nigerian naira.
Historically, during periods of global uncertainty, capital flows tend to exit emerging markets like Nigeria in favour of safer dollar-denominated assets, weakening local currencies.
Between February and early March 2026, the naira experienced notable volatility, trading within the range of approximately ₦1,425 to ₦1,492 per dollar across both official and parallel markets. This depreciation occurred despite rising global oil prices an unusual trend given Nigeria’s status as an oil-exporting nation.
The appreciation of the US dollar driven by the Middle East war (roughly February–April 2026) has placed significant downward pressure on the Nigerian Naira, weakening it across both official and parallel markets despite a simultaneous rise in oil prices. The conflict has forced investors to flee emerging markets for “safe-haven” dollar assets, causing the Naira to weaken to around ₦1,425–₦1,492 per dollar by early March 2026.
One key driver of this trend is the reduced inflow of foreign portfolio investments into Nigeria’s financial markets, as investors adopt a risk-off approach. At the same time, increased demand for dollars by importers and businesses especially due to higher energy and logistics costs has intensified pressure on the foreign exchange market.
Additionally, Nigeria’s foreign reserves and Central Bank interventions play a crucial role. While authorities have attempted to stabilise the currency through FX supply measures, persistent external shocks such as this sort of global conflict continue to undermine these efforts.
Looking ahead, if tensions in the Middle East persist or escalate further, the naira could remain under pressure in the short term, potentially trading above the ₦1,500/$ threshold in volatile conditions.
However, a de-escalation particularly the reopening of the Strait of Hormuz could ease global market fears, stabilise oil supply chains, and support a gradual recovery of emerging market currencies, including the naira.
Discover more from LN247
Subscribe to get the latest posts sent to your email.
