I just noticed a pretty interesting phenomenon: this round of the US dollar market is really strong. In early March, the US Dollar Index once surged to 99.68, hitting a new high since November last year. Both the euro and the Japanese yen were hit hard—the EUR/USD fell to 1.1531, a fresh low, and USD/JPY was even moving toward the 158 level.

The underlying reasons are actually not that complicated. The escalation of the US-Iran conflict led Iran to close the Strait of Hormuz, directly pushing up oil prices. This quickly reignited inflation concerns. At the same time, the market sharply scaled back expectations that the Federal Reserve would cut rates within the year, and the probability of a second rate cut dropped from the previous level to 50%. The US dollar therefore gained strong support.

But Europe and Japan have it tougher. These two regions are highly dependent on Middle East energy imports. When oil prices rise, they face inflation pressure, and economic growth also comes under strain—so their currencies naturally can’t keep up with the dollar’s rally. I noticed that ING (International Netherlands Group) and Deutsche Bank have both been emphasizing that as long as the US-Iran conflict doesn’t de-escalate, the euro will be difficult to turn around in the short term.

What’s interesting is that this strong-dollar dynamic also affects the crypto market. The cross-asset correlation, such as between the US dollar and Solana, is becoming increasingly obvious. When the dollar appreciates, risk assets often come under pressure. Japanese officials seem to be preparing to intervene in the yen, and they are expected to keep USD/JPY in the 155 to 160 range.

Overall, in the short term, the US dollar still needs to remain strong. The market needs to see clear signals that the conflict is de-escalating before the euro and the yen have a chance to rebound. This situation may continue for a while longer, so it’s worth keeping an eye on.