Global Forex Monitor - April 2026: A strong dollar in unpredictable times

March was dominated by the armed conflict between the US/Israel and Iran, triggering a major energy shock. The closure of the Strait of Hormuz sent the price of Brent soaring to $118/bbl, reigniting inflationary fears and forcing a complete reassessment of monetary policies. This led to a sharp rise in the US dollar (propelling the DXY dollar index to 101), a pronounced divergence between energy-importing and energy-exporting countries, and a risk of stagflation (growth under threat, rising inflation). President Trump’s speech on 1 April, ruling out any de-escalation in the short term, reinforced this state of affairs. In this environment, the US dollar acted as a safe-haven asset, outperforming gold, the currency buoyed also by the prospect of a prolonged monetary status quo.The US dollar’s performance will depend on the duration of the war and, in particular, on how long the Strait of Hormuz remains closed. In April, an escalation of the war could push the DXY dollar index temporarily higher, towards 101. Subsequently, if, as we anticipate, there is a de-escalation in early May, the war premium currently bolstering the greenback will fade, to the benefit of other currencies. In this case, the DXY dollar index can be expected to return to around 98 by June. If, on the other hand, the war drags on well beyond April, the DXY dollar index could rise to around 103 by June. Looking ahead to the second half of the year, we remain bearish on the US dollar, our view being that a resolution will be found before the US mid-term elections and that the Fed will continue to cut its key interest rates (by an expected 50bp).In March, the euro fell sharply against the US dollar, down from 1.1783 to 1.1541. This decline can be attributed to demand for the US dollar as a safe-haven currency on account of the conflict in the Middle East and the surge in oil prices, which is hurting Europe. Although the markets are anticipating several ECB rate hikes to counter inflation, the most likely scenario remains a single rise by June. The euro’s performance going forward, therefore, depends entirely on the duration of the Iran war. The EUR/USD can be expected to remain within a 1.14-1.16 range in the short term, with potential for a recovery towards 1.17-1.19 in Q3-26 should there be a de-escalation.