The US dollar’s reaction to recent US strikes in Iran has been minimal, despite its previous undervalued condition. The market’s tendency to swiftly punish but slowly reward the dollar persists, with a prolonged period of high oil prices potentially altering this dynamic by increasing reliance on the dollar for safety.

There are reports of potential disruptions in the Strait of Hormuz, which could drive oil prices higher and affect the dollar. Currently, Brent prices rose above $80 per barrel but have stabilised above $78. If the geopolitical risk dissipates quickly, markets might revert to preferring USD shorts based on bearish US-generated factors.

Market Focus

Data is expected to play a minor role this week. The US calendar is led by Friday’s core PCE figure, forecasted at 0.1%. The Federal Reserve’s cautious stance makes it unlikely to affect rate expectations. Jerome Powell will be speaking in Congress, potentially addressing these issues. Additionally, S&P Global PMIs are anticipated to decline, and consumer confidence will be monitored for shifts above the 100.0 mark.

We’ll need to pay particular attention to risk sentiment in the energy markets. While the dollar hasn’t shown much immediate reaction to the reported military activity, that isn’t a signal to dismiss potential aftershocks. What’s more telling is how Brent crude has found a floor above $78 per barrel, following a brief flirtation with $80. That suggests risk premiums are quietly building, though not yet accelerating. If logistical threats at strategic chokepoints like the Strait of Hormuz become more credible, oil prices would likely adjust rapidly, and so would the demand for dollars as a proxy for safety. This isn’t about linear cause and effect; it’s more to do with the conditions under which traders feel they need to act.

The behaviour of the dollar around such moments has not changed much. It still reacts quickly to negative headlines but doesn’t gain ground as fast when those concerns ease. That’s worth remembering. Should the recent tension subside without wider escalation, there’s a good chance we’ll see renewed pressure on the dollar, particularly from those still holding bearish macro views on the US economy.

Key Events And Data

Moving to the calendar, the coming days look thin in terms of data, and that’s a prompt to focus even harder on smaller details. The only item of real weight appears to be Friday’s PCE inflation figure. Estimates are pointing to a 0.1% month-on-month rise—a soft number and unlikely to shift Federal Reserve expectations meaningfully. That means short-term swap pricing is unlikely to budge much in response. That said, Chair Powell will appear before Congress, and although we don’t expect any departure from the Fed’s current messaging, his tone and choice of emphasis could still prompt repositioning. Any subtle acknowledgement of geopolitical risks or market fragility could carry more influence than usual given the data vacuum elsewhere.

Outside that, the S&P Global PMIs are set to trend slightly lower. Whether that feeds into broader USD moves depends very much on how investors interpret the connection between softening manufacturing and Fed patience. We’re also watching consumer confidence figures; anything that challenges the steady grind above the 100.0 mark might introduce a layer of doubt around Q3 consumption trends. From our side, it’s less about trading each number and more about watching how expectations morph around them.

In short, while scheduled events are unlikely to offer sharp direction, positioning can start to shift quietly. What matters now is how energy prices, soft indicators, and Powell’s phrasing interact in shaping sentiment. For that reason, we’ll be paying more attention to tone and timing than to numbers alone.

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