The US dollar snapped a multi-week slide on April 22 after reports confirmed the closure of the Strait of Hormuz. Safe-haven buying crushed the risk-on trade that had dominated forex markets through early April.
The strait sits between Iran and Oman. Roughly a fifth of the world’s crude oil and liquefied natural gas moves through it every day. When that chokepoint shuts, energy markets panic. Currency traders reach for the dollar.
What Triggered the Closure
Escalating military tensions across the Middle East forced commercial shipping out of the strait by late morning GMT on April 22. Vessel-tracking services showed tankers and cargo ships rerouting around the Arabian Peninsula, adding days to transit times and uncertainty to global supply chains.
Details on the ground remain fluid. But the market reaction was immediate.
The dollar index reversed course and pushed higher against a basket of major currencies. The euro, British pound, and commodity-linked currencies, the Australian dollar and Canadian dollar in particular, all dropped.
Commodity currencies got hit hardest. Australia and Canada export raw materials, but their economies depend on stable global trade routes. A Hormuz shutdown threatens both sides of that equation.
Why the Dollar Benefits Twice
The greenback picks up a double tailwind during Middle East crises. It’s the world’s reserve currency, so capital flows into it by default when fear spikes. And every barrel of crude oil on the planet is priced in dollars — so an oil supply shock mechanically increases dollar demand.
That’s not a theory. It happened during Iraq’s invasion of Kuwait in 1990. It happened after Iran’s tanker seizures in 2019. It happened when Houthi rebels disrupted Red Sea shipping in late 2023 and 2024.
Each time, the pattern repeated: oil up, dollar up, risk assets down.
The Trade That Just Broke
Through most of April, the dollar had been drifting lower. Markets were betting the Federal Reserve would ease policy in the second half of 2026. Risk appetite was strong. Equities climbed. Traders sold dollars to chase yield in emerging markets and higher-beta currencies.
That positioning unwound fast on April 22.
Carry trades — where investors borrow in low-yielding currencies and park funds in higher-yielding ones — are especially vulnerable to geopolitical shocks. When fear spikes, those positions get liquidated. The dollar rises not just because people want it, but because they’re forced to buy it to close out short positions.
Analyst Take
Safe-haven pops can evaporate overnight if tensions de-escalate. Traders who loaded up on dollar longs during the 2019 tanker crisis gave back those gains within weeks. The reflex trade is easy. Holding it is the hard part.
The real variable isn’t whether the dollar rallied — it did. The variable is duration. Does Hormuz stay closed for hours, days, or weeks?
If crude prices remain elevated for weeks, central banks face a bind. Higher energy costs push inflation up but squeeze growth at the same time. The Fed won’t cut rates into an oil shock. That math keeps the dollar supported well beyond the initial fear trade.
But if diplomatic channels open and shipping resumes within days, this looks like 2019 again — a sharp move that fades as fast as it arrived.
What to Watch From Here
These signals will determine whether the dollar’s rebound has legs:
- Crude oil duration. A one-day spike gets faded. Sustained elevation above pre-crisis levels forces central banks to react and keeps the dollar bid.
- Diplomatic signals from Gulf states. Any credible sign of reopening or negotiated passage access could unwind the safe-haven trade within a single session.
- Fed commentary. If officials acknowledge energy-driven inflation risks, rate cut expectations shift — and the dollar stays firm.
- EUR/USD and AUD/USD. These two pairs are the clearest barometers. If they stabilize, the panic is over. If they keep sliding, markets are pricing in a longer disruption.
The strait has been threatened before. It’s rarely been fully shut. That distinction matters, and the next 48 hours will tell traders which scenario they’re actually in.
Frequently Asked Questions
Why does the Strait of Hormuz matter for forex markets?
About 20% of the world’s oil supply passes through Hormuz daily. When it closes, oil prices jump, inflation expectations shift, and traders buy safe-haven currencies — primarily the US dollar, Swiss franc, and Japanese yen. The disruption ripples across every major currency pair.
How long do safe-haven dollar rallies usually last?
It depends on the trigger. Iran’s 2019 tanker seizures produced a dollar pop that faded within two to three weeks. The 2024 Red Sea disruptions lasted longer because shipping reroutes persisted for months. Duration of the underlying crisis determines whether the dollar move sticks.
Which currencies are most vulnerable to a Hormuz closure?
Commodity-linked currencies like AUD/USD and USD/CAD tend to swing hardest. The euro also weakens because Europe imports a large share of its energy through Middle Eastern supply chains. Emerging market currencies with current account deficits face the sharpest pressure.
Does a Hormuz closure change Federal Reserve policy?
Not immediately. But if oil stays elevated long enough to feed into core inflation data, the Fed’s timeline for rate cuts gets pushed back. Higher energy costs act like a de facto tightening of financial conditions — the Fed doesn’t need to raise rates if oil does the work for them.
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