The U.S. dollar reversed course to slip lower on Monday, as an initial boost to safe haven demand petered out and increased risk appetite sent investors towards equities.
Despite President Donald Trump’s announcement of a U.S. naval blockade on the critical Strait of Hormuz following failed peace talks over the weekend, bets for continued negotiations helped improve sentiment.
At 16:38 ET (20:38 ET), the US Dollar Index, which tracks the greenback against a basket of six major peers, was down 0.3% to 98.37.
Track the impact of the Iran war on forex markets with InvestingPro - now 50% off
Trump says Hormuz blockade has gone into effect Trump on Monday morning said the U.S. military blockade of the Strait of Hormuz, a vital waterway through which a fifth of the world’s oil and gas flows, would go into effect at 10:00 ET. The blockade would apply to any vessels "entering or departing Iranian ports and coastal areas."
Trump later said 34 ships had gone through the strait on Sunday, adding it was "by far the highest number since this foolish closure began."
"We can’t let a country blackmail or extort the world because that’s what they’re doing, they’re really blackmailing the world. We’re not going to let that happen," the president told reporters.
"And many ships are heading to our country right now as we speak to load up with the best [oil]," he added.
The president first announced the blockade on Sunday, warning that no ship who has paid an effective toll charged by Tehran will have "safe passage on the high seas."
Oil prices initially soared after the announcement of the blockade, but gave up gains following Trump’s touting of the "highest number" of shipping traffic through the Strait of Hormuz on Sunday. Surging oil prices due to supply disruptions from the strait’s closure has fueled concerns of an inflationary shock across the globe.
Throughout the conflict, which began with joint U.S. and Israeli strikes on Iran in late February, investors have turned to the dollar as a bastion. The currency has also benefited from U.S.’s position as a net energy exporter, which some analysts have suggested could limit its exposure to oil supply constraints in the strait.
A host of major Asian economies, in particular, are major importers of oil that traverses the strait, leaving these countries heavily exposed to the developments in the Middle East.
Hungarian forint gains Elsewhere, the Hungarian forint rallied after long-time nationalist leader Viktor Orban was ousted in a national election.
Orban, who had been in power for 16 years, lost power to rival Peter Magyar from the Tisza party. Following the vote, the forint jumped to its strongest level against the dollar since February 2022.
"From the market’s perspective, the constitutional majority allows for a smooth transfer of power for the opposition and a faster path to unlocking EU funds, which are the main focus of investors, giving Hungarian assets another reason to extend their rally," analysts at ING said in a note.
