FX Daily: EUR/USD may drop to 1.16 if tensions with Iran intensify

US-Iran Tensions Dominate Markets and Boost the Dollar

Escalating friction between the United States and Iran has overshadowed most other influences in the financial markets, providing renewed strength to the US dollar as oil prices climb. This situation demonstrates a notable pattern for the dollar in the period following Liberation Day: while its reputation as a safe-haven currency is typically reduced, it quickly regains that status when geopolitical risks cause oil price spikes.

Part of the reason lies in the vulnerability of other traditional safe-haven currencies, such as the euro and the yen, which rely heavily on imported energy. When oil becomes more expensive, these currencies lose some of their appeal. Since early February, oil price movements have closely mirrored Polymarket’s projected likelihood of a US military action against Iran by the end of March.