The U.S. dollar strengthened against all major currencies as rising oil prices led traders to scale back expectations for Federal Reserve interest rate cuts this year, while safe-haven demand also increased. At the time of writing, the U.S. Dollar Index (DXY) rose 0.82% to 98.504, reaching its highest level since January 22. The inflationary impact of higher oil prices has led swap traders to currently price in approximately 59 basis points of Fed rate cuts for the year, down from an expectation of 61 basis points last Friday.

Gareth Berry, a strategist at Macquarie Group in Singapore, commented, "This could be an early signal that the market believes the Fed will be less inclined to cut rates if the oil price rally persists and ultimately translates into higher U.S. inflationary pressures." A deterioration in risk sentiment also contributed to the dollar's gains. Iran's national security chief stated that the country would not negotiate with the United States. U.S. President Donald Trump declared that airstrikes against Iran would continue until objectives were met and called on Iranian leaders to surrender.

Notably, aside from gold, the U.S. dollar was one of the few traditional safe-haven assets to advance on Monday. U.S. Treasury bonds, the Japanese yen, and the Swiss franc all declined. The drop in Treasury bonds reflects market concerns about energy-driven inflation.

A sharp increase in security risks in the Middle East, coupled with the effective closure of the crucial Strait of Hormuz oil transit route, has intensified supply concerns and propelled oil prices significantly higher on Monday. By the time of writing, Brent crude futures were up 9.46% to $79.76 per barrel, after surging as much as 13% at the market open. WTI crude futures rose 8.89% to $72.98 per barrel.

Following military strikes by the U.S. and Israel against Iran on February 28, Iran announced the closure of the Strait of Hormuz. Several tanker owners and traders have suspended the transport of crude oil, fuel, and liquefied natural gas through the strait. Data from international tanker traffic monitoring systems indicated that the sailing speed of tankers previously in the vicinity of the Strait of Hormuz had generally dropped to zero, showing that shipping in the region has come to a standstill.

Concurrently, several European governments have issued emergency directives to their flagged tankers en route, strictly prohibiting passage through the Strait of Hormoz to avoid security risks from the escalating situation. The Strait of Hormuz is the most critical chokepoint for Middle Eastern crude oil transportation. Among the world's eight major crude oil shipping lanes, it holds the highest importance. In 2025, over 20 million barrels per day of crude oil transited the strait, accounting for approximately 26.6% of global seaborne crude oil trade.

Jorge Leon, an economist at energy research firm Rystad Energy, analyzed that even with alternative routes like Saudi Arabia's East-West Pipeline and UAE infrastructure, a full closure of the Strait of Hormuz could still lead to a reduction of 8 to 10 million barrels per day in global crude oil supply. For the global crude market, the key question is whether the tensions in the Middle East will escalate into a prolonged disruption of crude exports from the Gulf region.

The impact on supply will first be felt through panic over potential disruptions, followed by the actual effects of any disruption. These factors would directly and rapidly be reflected in international crude oil prices, making a sharp price surge highly likely. If this is subsequently supported by peak demand season factors, international crude oil prices could potentially challenge $100 per barrel.

Saul Kavonic, Head of Energy Research at MST Marquee, stated that initial signs suggest this is a larger-scale attack on Iran, accompanied by retaliation, which could draw multiple Gulf countries into the conflict. The market will initially price in a range of risks—from the loss of up to 2 million barrels per day of Iranian exports, to attacks on regional infrastructure, and even the complete closure of the Strait of Hormuz in an extreme scenario. He said, "This could be three times more severe than the Arab oil embargo of the 1970s, potentially driving international oil prices into triple digits."

In the Fed's January meeting minutes released last month, officials projected that inflation would move down toward 2%, but acknowledged that the pace and timing of the decline remained uncertain. Most participating officials warned that progress toward the 2% target could be slower and more uneven than generally expected, and the risk of inflation persisting above target should not be overlooked. Some officials also suggested that persistent demand pressures could keep inflation elevated. Now, rising oil prices may further delay the decline of U.S. inflation, making it more difficult for the Federal Reserve to implement interest rate cuts.