There has been one dominant theme for markets through March, namely, conflict in the Middle East, and the impact that this is having on oil prices. For FX, gains and losses have come via two main channels: terms-of-trade, and risk conditions. Both have worked to the benefit of the dollar over the course of the month, despite the US itself being a party to the conflict. In any case, the result is a greenback that has made gains against all major currencies, with the DXY now trading near its strongest level in almost a year.

Looking ahead, the evolution of tensions between the US, Israel, and Iran will likely be the key FX catalyst in April too. We think a near-immediate cessation in hostilities would see much of the past month’s moves unwound relatively quickly, with the market impact largely washed out by mid-year. But a more drawn-out conflict looks likely, with more persistent market implications. That is almost certain to drive both oil and the dollar higher still, especially if accompanied by further escalation. In short then, the dollar’s fortunes are now biased higher relative to our prior forecasts, written just before the outbreak of war. The magnitude of this dislocation, however, will depend on the length and intensity of the conflict, meaning plenty of uncertainty to adjust for.

Read our April 2026 FX Forecasts here:

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Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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