Investors Flock to Dollar as Hormuz Uncertainty Deepens

The US Dollar Index (DXY) rose to 98.50 on Tuesday (May 5), supported by growing investor concerns over a prolonged geopolitical standoff in the Middle East.

According to a report from Iran's Fars News Agency, a US warship was struck by two missiles near Jask in the Gulf of Oman after allegedly ignoring warnings from Iranian authorities while attempting to enter the Strait of Hormuz.

However, the US Central Command (CENTCOM) rejected the claim, stating instead that a US Navy guided-missile destroyer had successfully entered the Gulf, breaking through the Iranian blockade, while two US commercial vessels were also reported to have passed through the strategic waterway.

Despite the differing accounts, market participants see a risk of escalation into a broader conflict. This situation has driven demand for the US dollar as a safe-haven asset.

Juan Perez, Director of Trading at Monex USA, indicated that as long as the blockade persists, elevated uncertainty is likely to continue constraining broader market movements while underpinning the dollar's resilience. He also suggested that risk sentiment would only recover in the event of a diplomatic breakthrough, which in turn could weigh on the greenback.

In intraday trading, the US dollar appears to strengthen against the majority of major currencies, with geopolitical risks overshadowing traditional economic drivers.

The USD/JPY pair held relatively steady after finding support near the 157.00 level, as investors monitored both the evolving conflict and the possibility of further intervention by Japanese authorities, who were previously suspected of stepping into the market to support the yen.

Meanwhile, EUR/USD declined to 1.1685, reversing earlier gains that followed the European Central Bank's policy announcement. The euro came under renewed pressure amid concerns over a potential energy crisis and rising trade tensions. US President Donald Trump was reportedly considering increasing tariffs on European Union automotive imports by as much as 25%.

Amanda Sundström, a foreign exchange strategist at SEB, noted that while automotive tariffs could have a negative impact, they were not the primary driver of current market dynamics. She emphasized that investor focus remains firmly on developments in the Middle East, adding that any de-escalation in tensions would likely provide supportive momentum for the euro.