Dollar gets its mojo back - but only by default

• European gas prices surged nearly 50% and the euro fell 1% against the dollar, as Europe relies on the Hormuz route for 20% of LNG shipments and 30% of crude oil imports
• Japan's yen dropped over 1% against the dollar due to heavy energy import dependence, with about one-third of imports passing through the Strait of Hormuz
• Barclays estimates every sustained $10 per barrel oil price increase reduces global growth by up to 0.2 percentage points, though Monday's $5 Brent crude rise to $77 represents a modest impact so far

Market Summary: Dollar Strengthens on Energy Dynamics Following Iran Strikes

Key Development:

The U.S. dollar surged across major currencies following weekend bombing campaigns by U.S. and Israeli forces against Iranian targets, but analysts attribute this more to relative energy exposure than traditional safe-haven demand.

Market Movements:

• Brent crude oil rose $5 to $77/barrel on Monday
• Euro fell 1% against the dollar to multi-week lows
• Japanese yen dropped over 1% vs. dollar
• Chinese yuan declined 0.8%
• European benchmark gas prices surged 35% (nearly 50% intraday), reaching highest levels in over a year

Energy Trade Impact:

The dollar's strength reflects America's position as a net energy exporter, disadvantaging energy-importing economies. Japan imports about one-third of its energy through the Strait of Hormuz, while Europe depends on this route for 20% of LNG shipments and 30% of crude oil. The U.S. supplied 58% of EU LNG last year. Qatar, providing 6% of EU imports, halted exports Monday following Iranian attacks.

Economic Implications:

Barclays estimates each sustained $10/barrel oil increase reduces global growth by 0.2 percentage points. The bank's currency model suggests the dollar gains 0.5-1.0% per $10 oil increase, potentially creating a self-reinforcing loop that exacerbates energy shocks for importing nations.

With U.S. inflation running above 3%, elevated oil prices could support higher interest rates, further bolstering the dollar. Trump indicated military operations may last weeks rather than days, with prediction markets assigning 63% probability of ending by month-end.

Bottom Line:

This represents a "dollar by default" scenario driven by relative energy vulnerabilities rather than traditional safe-haven flows, with Northern Asian currencies and the euro particularly exposed.