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The first full trading day of the Iran crisis saw a dramatic “risk off” environment that defied safe-haven expectations in currency markets. While the US was one of the primary military actors with Israel in attacking Iran, the USD emerged as the undisputed global refuge. The DXY Index surged by 0.8% to 98.38 overnight, breaking above the month-long resistance at 98 to its highest closing level since January 22. Contrary to the historical playbook, markets were caught significantly wrong-footed in expecting the CHF to act as the primary haven. Instead, the CHF tumbled 1.27% against the USD, driven by the Swiss National Bank’s readiness for FX interventions to prevent excessive CHF strength from hurting Swiss exports during the global turmoil. In contrast, South Korean officials stepped up policy support for the KRW, the worst performer that depreciated almost 2% on Monday.
The Strait of Hormuz is arguably the most sensitive "nerve centre" for Asian export-led economies. Its effective closure following the US and Israeli strikes on Iran on February 28 has created a "pincer effect" on regional currencies by simultaneously threatening the supply chain (input costs) and the customer base (global demand). The THB and MYR depreciated by 1.2% and 0.8% against the USD. Having previously benefitted from the Fed’s rate cuts and dovish outlook, both currencies were hurt by the prospect of war-induced energy inflation, which could lead to an extended Fed rate pause. The ISM Manufacturing PMI prices paid sub-index spiked to 80.5 in February from 59.0 in January, one of the primary catalysts lifting the US Treasury 10Y bond yield by almost 10 bps to 4.03% overnight. The CNY saw its appreciation streak halting abruptly after the People’s Bank of China lifted the daily fixing for USD/CNY to 6.9236.
While the recovery in the S&P 500 and the retracement of oil prices suggest a "sigh of relief" for currencies today, the calm is fragile. We are essentially in a holding pattern where technical stability masks a highly fluid and unpredictable geopolitical reality. US President Donald Trump has deliberately kept the strategic timeline vague, leaving both allies and markets guessing. While he characterized Operation Epic Fury as a "four-week process,” he simultaneously warned that strikes would continue "as long as necessary.” Markets will also look to this week’s expected Senate vote on the War Powers Resolution as a direct signal to the sustainability of this war. While the vote requires a simple majority to pass, it will lack the two-thirds majority later to override Trump’s likely veto.
Quote of the Day
"Ethics is knowing the difference between what you have a right to do and what is right to do.”
Potter Stewart
March 3 in history
In 1931, the US Congress passed a joint resolution (46 Stat. 1508) making the "The Star-Spangled Banner" the official national anthem of the United States.
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Related Insights
- USD Rates: War is inherently inflationary12 Mar 2026
- BOJ hike expectations vs. RBA; USTR’s Plan B 12 Mar 2026
- USD Rates: Inflation lurks 11 Mar 2026
Related Insights
- USD Rates: War is inherently inflationary12 Mar 2026
- BOJ hike expectations vs. RBA; USTR’s Plan B 12 Mar 2026
- USD Rates: Inflation lurks 11 Mar 2026