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The U.S. Dollar Index crossed 100 on Friday for the first time since November 2025, heading for a second consecutive weekly gain as the Iran war drags on with no de-escalation in sight. EUR/USD is at 1.1457, down nearly five figures from its January highs. USD/JPY is back at 158. The dollar isn’t winning because the U.S. economy is healthy. The BEA just confirmed it isn’t. It’s winning because everything else is in worse shape.
The Safe Haven No One Wanted
When U.S.-Israeli strikes on Iran began on February 28 and Brent crude started its move toward triple digits, the DXY was sitting near 98. By Thursday it had printed 99.6, its highest level since November 2024 per Trading Economics, and by Friday morning it had cleared the 100 handle for the first time in more than three months. On a surface reading, that looks like a strong dollar trade. Look closer and it’s really a weak-everything-else trade.
The mechanism is straightforward. Rising oil is denominated in dollars, which partly insulates the U.S. from its own inflation. Other major economies don’t have that buffer. Europe imports roughly 90% of its hydrocarbons. Japan covers almost none domestically. Canada, by contrast, exports a lot of it. The dollar is rising because the war has sorted currencies by energy exposure, and the U.S. comes out on top almost by accident. NBC Economics put it plainly in its March forex outlook: the U.S. is “better positioned than other economies due to its greater energy independence.”
EUR/USD: Four Months Undone in Eleven Days
EUR/USD was trading above 1.19 as recently as January. On Friday morning it sat at 1.1457, per LiteFinance. That’s a roughly 450-pip move in less than two weeks of active conflict, reversing a rally that had taken most of the second half of 2025 to build. The pair broke below 1.16 on the initial shock and has ground lower since, with Khamenei’s pledge to keep Hormuz closed removing any near-term resolution premium that traders had been pricing in.
The euro’s problem isn’t purely risk sentiment. It’s structural. The NBC Economics March report described the conflict as having “exposed Europe’s acute energy vulnerability” in a way that earlier optimism around German defence spending hadn’t absorbed. The ECB cut rates 100 basis points in 2025, bringing its deposit rate to 2.00% per MUFG Research, and the rate path from here is now harder to read. FXStreet data shows markets pricing around 44 basis points of tightening by year-end as energy threatens to re-inflate the Eurozone CPI, but that’s not the kind of yield support that attracts capital. The pair is fighting both sides: a Fed frozen by stagflation on one hand, and an ECB facing a supply-side price shock on the other. We have written about how EUR/USD has been caught between two forces that rarely move at the same time. The war just locked that dynamic in for at least another quarter.
The Yen Is Stuck in an Impossible Trade
USD/JPY has climbed back toward 158, per NBC’s March forex strategy table, erasing the brief yen strength that showed up in the first days of the conflict when safe-haven flows split between the two currencies. That split is over. The dollar won it decisively.
Japan’s problem is the same as Europe’s, just more acute. The country imports nearly all of its energy, and a sustained period of $100-plus Brent does not just hit the current account. It actively complicates the BoJ’s rate path. The Bank raised its policy rate to 0.75% in December per MUFG, the highest since 1995, but further hikes are harder to justify when tightening into a stagflating economy risks tipping it into outright contraction. The yen’s traditional safe-haven role came under serious pressure for exactly this reason. When the conflict broke, the yen lost its safe-haven status within days as Japan’s three-week gas reserves became a market story. Nothing has changed since then.
CAD Is the Quiet Winner
The Canadian dollar has been the strongest performer in G10 since the conflict began, and the logic is the mirror image of Japan and Europe’s problem. Canada exports oil. Higher Brent expands its terms of trade, compresses the trade deficit, and gives the Bank of Canada room that neither the ECB nor the BoJ currently has. NBC Economics called the loonie “one of the strongest major currencies since the Iran conflict began” in its March report, pointing to Canada’s net energy surplus and rising production. The bank also flagged potential for further CAD appreciation if Middle East tensions push Washington and Ottawa toward more constructive trade talks before the U.S. midterms. USD/CAD has moved materially lower since late February. For traders looking for a clean expression of the long-oil, short-dollar thesis in G10, the Canadian dollar remains the most direct version of that trade.
The GDP Print That Changes the Calculus
Friday’s BEA data dropped at 8:30 a.m. and it was not kind to the economic backdrop. The second estimate of Q4 2025 GDP came in at 0.7%, down from the advance estimate of 1.4%, the Bureau of Economic Analysis confirmed. The prior quarter had printed at 4.4%. That is a dramatic deceleration by any measure, and the BEA noted that the federal government shutdown from October through mid-November alone subtracted roughly one percentage point from fourth-quarter growth.
The PCE data released alongside it was equally uncomfortable. Headline PCE inflation for January came in at 2.8% on a 12-month basis per the BEA. The core reading, excluding food and energy, was 3.1%. That number is what matters to the Fed, and it is running well above the 2% target. David Russell, global head of market strategy at TradeStation, called the GDP revision “a gut check going into this energy crunch, increasing the risk of stagflation.” Sonu Varghese, chief macro strategist at the Carson Group, was equally direct: the inflation picture “wasn’t looking good even before the Middle East crisis.”
Michael Feroli at JPMorgan described the Fed’s position as a “stagflationary vice” where growth is slowing fast but inflation is too high to justify cutting. CME FedWatch data puts the probability of no change at the March 17-18 meeting at 99%. The expected first cut has shifted from July to September per Trading Economics. As we covered when ISM prices hit 70.5 and the dollar rallied without a single cut materialising, this frozen-Fed dynamic has been building for weeks. Friday’s data confirmed it is not going away anytime soon.
100 Is the Level to Watch
The DXY at 100 is technically meaningful. The index spent most of the second half of 2025 in a downtrend after the Fed began cutting, and 100 had been acting as a ceiling through the early weeks of 2026. Holding above it would be a genuine regime change for the dollar, not just a wartime spike. NBC Economics is not calling for that. The bank describes the current rally as “more likely temporary than a broad-based surge” under its base case that the conflict stays contained. MUFG made the same bet in its March outlook, leaving year-end dollar forecasts broadly unchanged on the assumption hostilities shorten rather than extend.
The scenario that breaks that base case is not hard to sketch. Hormuz stays partially disrupted into Q2. Core PCE re-accelerates toward 3.5% as energy costs work through the supply chain. The Fed goes into June still on hold while European growth slips negative and the ECB faces its own impossible choice. In that world, the dollar does not pull back when the war noise fades. It stays bid because the underlying macro picture has shifted. EUR/USD at 1.10 would not be an outlier in that scenario. It would be the number the models start pointing at.
For now, the DXY is above 100 because the alternatives look worse. How long that lasts depends almost entirely on one question that no forex model can answer: how long does Hormuz stay closed?
