On Wednesday, April 15, the US dollar index briefly surged to 98.23 before giving back some of its gains and is currently trading around 98.19. This movement was directly driven by renewed escalation of geopolitical tensions in the Middle East, with the US Department of Defense announcing the deployment of approximately 10,000 additional military personnel to the region. This includes 6,000 personnel aboard the USS George H.W. Bush aircraft carrier and 4,200 personnel belonging to the USS Boxer Amphibious Ready Group and the 11th Marine Expeditionary Force. This deployment brings the number of US aircraft carriers in the region to three, providing more options for potential operations.


Meanwhile, the US strengthened its maritime blockade of Iranian ports, with more than ten warships conducting interception missions in the Gulf of Oman and the Arabian Sea. With the deadline for the US-Iran ceasefire agreement approaching (April 22), negotiations led by Vice President Vance are facing pressure, market risk sentiment has been significantly dampened, and the US dollar, as a safe-haven asset, has received short-term support, but subsequent volatility remains high.

Immediate market reaction to the rise and fall of the US dollar index

The US dollar index retreated from around 98.37 earlier this week, with the recent surge primarily driven by the unexpected military developments in the Middle East. Traders observed a decline in risk appetite leading to a rapid inflow of funds into dollar-denominated assets, but the extent of the pullback indicates the market has not fully shifted to a bullish stance. Historical data shows that such geopolitical events often trigger intraday fluctuations of 0.5% to 1% in the dollar index in the initial stages, with the duration depending on how the situation evolves. Currently, the dollar index has fallen by approximately 1.5% from its late March high, indicating that the previously accumulated safe-haven premium is facing digestion pressure. If negotiations make substantial progress, the dollar's safe-haven premium could shrink rapidly; conversely, if the blockade triggers further friction, the index could retest the 99 level.

The Transmission of Middle East Military Deployment to Risk Sentiment and Safe-Haven Capital Flows

The US troop buildup aims to increase leverage in negotiations, focusing on Iran's nuclear program and the reopening of the Strait of Hormuz. Trump recently stated that the Navy will immediately blockade the Strait, and any interference will face a severe response. Military analysts emphasize that while ship landings and ground operations can exert pressure, they could also increase the risk of US casualties. This dynamic is similar to the US troop buildup before the February conflict, when risk sentiment also cooled rapidly, driving a short-term rebound of about 2% in the dollar index. Traders point out that safe-haven funds are mainly flowing into traditional safe-haven assets such as the US dollar and Japanese yen, while some funds are flowing out of high-yield currencies, forming a typical "fly to safety" pattern. Currently, the 10-year US Treasury yield remains in the 4.25% to 4.26% range, indicating that the bond market has also absorbed some safe-haven buying, but yields have not fallen significantly, suggesting a hedging effect between inflation concerns and geopolitical risks. If negotiations break down before April 22, risk sentiment may further deteriorate, and the dollar index may continue its strength; conversely, any signs of easing tensions will accelerate profit-taking.

Analysis of the correlation between energy price fluctuations and US dollar fundamentals

Tensions in the Middle East have directly pushed up energy prices, with Brent crude currently hovering around $95 to $96 per barrel and WTI crude around $91 to $92 per barrel, still at relatively high levels. Concerns about a potential blockade of the Strait of Hormuz have amplified the risk of supply disruptions, although the actual scale of these disruptions is still limited, traders have already priced this factor into their pricing. Rising energy prices typically support the dollar indirectly through inflation, as high oil prices can push up overall price levels, limiting the Federal Reserve's room for interest rate cuts. Currently, the target range for the federal funds rate remains at 3.5% to 3.75%, and market expectations for the number of rate cuts in 2026 have been lowered from two to one or even zero. However, in the long term, if energy prices stabilize and decline, the fundamental support for the dollar will weaken, and its future performance will depend more on the comparison between US economic data and global growth expectations.

The US Dollar Index's technical indicators and relative strength of major currency pairs

From a technical perspective, the US dollar index has formed a short-term trading range between 98.05 and 98.23, with the 50-day moving average providing support and the 100-day moving average forming resistance around 98.90. The RSI indicator is in neutral-to-bullish territory and has not entered overbought territory, suggesting that there is still room for short-term fluctuations. In contrast, the US dollar's performance against major currencies is divergent: the euro/dollar pair has maintained relative resilience due to the European Central Bank's prudent policy; the pound/dollar pair has fluctuated in the 1.35 range, indicating that expectations of a Bank of England rate hike are exerting some restraint on the dollar. Overall, geopolitical risks have amplified the dollar's defensive attributes, but the divergence in global central bank policies has limited its upside potential. Traders generally believe that the medium-term trend of the US dollar index will depend on the speed of easing tensions in the Middle East and the release of major economic data. If risk sentiment remains weak, the dollar may bottom out at current levels; conversely, any positive progress in negotiations will test the support levels below.