FX Outlook: How Oil Prices and the Strait of Hormuz Are Driving G10 Currency Markets
Billy Martin Lamera Capital
2026-03-16
As tensions in the Middle East continue to influence global markets, a country's exposure to energy prices is becoming one of the most important drivers of G10 currency performance.
The disruption to shipping through the Strait of Hormuz, one of the world’s most critical energy corridors, has pushed oil prices higher and introduced renewed uncertainty into the global energy system. Roughly 20% of global seaborne oil supply passes through the strait, meaning any disruption quickly affects inflation expectations, central bank policy outlooks and ultimately currency markets.
As a result, foreign exchange markets are increasingly dividing along clear lines between energy exporters, energy importers and traditional safe-haven currencies.
The disruption to shipping through the Strait of Hormuz, one of the world’s most critical energy corridors, has pushed oil prices higher and introduced renewed uncertainty into the global energy system. Roughly 20% of global seaborne oil supply passes through the strait, meaning any disruption quickly affects inflation expectations, central bank policy outlooks and ultimately currency markets.
As a result, foreign exchange markets are increasingly dividing along clear lines between energy exporters, energy importers and traditional safe-haven currencies.
US Dollar: Dominant Safe Haven in an Energy Shock
The US Dollar remains the dominant currency in this environment.
It continues to benefit from its role as the world’s primary safe-haven currency during geopolitical uncertainty, while the United States’ position as a major oil and gas producer provides an additional structural advantage when energy prices rise.
The trade-weighted US dollar index has strengthened in recent weeks as investors position for a potentially prolonged period of geopolitical risk and elevated energy prices.
It continues to benefit from its role as the world’s primary safe-haven currency during geopolitical uncertainty, while the United States’ position as a major oil and gas producer provides an additional structural advantage when energy prices rise.
The trade-weighted US dollar index has strengthened in recent weeks as investors position for a potentially prolonged period of geopolitical risk and elevated energy prices.
Pound Sterling: Supported by Rising UK Yields
Pound sterling has proven relatively resilient compared with many other major currencies.
Rising UK government bond yields have supported the pound as markets reassess how quickly the Bank of England will be able to cut interest rates in the face of renewed inflation risks driven by higher energy prices.
This repricing of interest rate expectations has helped the pound outperform some European peers, particularly against the euro.
Rising UK government bond yields have supported the pound as markets reassess how quickly the Bank of England will be able to cut interest rates in the face of renewed inflation risks driven by higher energy prices.
This repricing of interest rate expectations has helped the pound outperform some European peers, particularly against the euro.
Euro: Vulnerable to Higher Energy Prices
The euro remains one of the more vulnerable currencies in the G10 complex.
The Eurozone’s heavy reliance on imported energy leaves the region particularly exposed when oil and gas prices rise. Higher energy costs tend to weaken the region’s trade balance and create a difficult policy dilemma for the European Central Bank, balancing inflation risks against slowing economic growth.
As a result, the euro often struggles during periods of sustained energy market disruption.
The Eurozone’s heavy reliance on imported energy leaves the region particularly exposed when oil and gas prices rise. Higher energy costs tend to weaken the region’s trade balance and create a difficult policy dilemma for the European Central Bank, balancing inflation risks against slowing economic growth.
As a result, the euro often struggles during periods of sustained energy market disruption.
Energy Exporters: Canadian Dollar and Norwegian Krone
Among the clearest beneficiaries of higher oil prices are currencies linked to energy-exporting economies.
The Canadian dollar and Norwegian krone are both supported when oil prices rise because stronger energy markets tend to improve the economic outlook and trade balances of countries with large oil export sectors.
This relationship means both currencies often outperform when global energy markets tighten.
The Canadian dollar and Norwegian krone are both supported when oil prices rise because stronger energy markets tend to improve the economic outlook and trade balances of countries with large oil export sectors.
This relationship means both currencies often outperform when global energy markets tighten.
Safe Haven Flows: Swiss Franc
The Swiss franc continues to act as a traditional safe-haven currency.
During periods of geopolitical stress, Switzerland’s strong external balance, political neutrality and stable financial system attract defensive capital flows from global investors.
As a result, the franc typically strengthens whenever global risk sentiment deteriorates.
During periods of geopolitical stress, Switzerland’s strong external balance, political neutrality and stable financial system attract defensive capital flows from global investors.
As a result, the franc typically strengthens whenever global risk sentiment deteriorates.
Commodity Currencies: Australian Dollar and New Zealand Dollar
Elsewhere in the G10 complex, the outlook is more mixed.
The Australian dollar has found some support from commodities and global resource demand, but it remains sensitive to broader shifts in global risk sentiment and economic growth expectations. The New Zealand dollar presents a similarly mixed outlook, balancing inflation pressures from higher import costs against potential growth risks for a small open economy.
The Australian dollar has found some support from commodities and global resource demand, but it remains sensitive to broader shifts in global risk sentiment and economic growth expectations. The New Zealand dollar presents a similarly mixed outlook, balancing inflation pressures from higher import costs against potential growth risks for a small open economy.
Japanese Yen: A Conflicted Safe Haven
The Japanese yen presents a more complicated dynamic.
While the yen traditionally benefits from safe-haven demand during periods of geopolitical stress, Japan’s heavy reliance on imported energy can weigh on the currency when oil prices rise sharply. This creates a more conflicted outlook compared with other defensive currencies such as the Swiss franc.
While the yen traditionally benefits from safe-haven demand during periods of geopolitical stress, Japan’s heavy reliance on imported energy can weigh on the currency when oil prices rise sharply. This creates a more conflicted outlook compared with other defensive currencies such as the Swiss franc.
Swedish Krona: Sensitive to Global Growth
The Swedish krona tends to behave as a cyclical European currency, often moving in line with global growth expectations and broader European economic conditions.
Smaller open economies such as Sweden can be particularly sensitive to global energy shocks and shifts in risk sentiment, which can place pressure on the krona during periods of market uncertainty.
Smaller open economies such as Sweden can be particularly sensitive to global energy shocks and shifts in risk sentiment, which can place pressure on the krona during periods of market uncertainty.
Energy Exposure Now Driving FX Markets
For now, the key theme in currency markets is clear.
Currencies are no longer moving primarily on traditional risk-on versus risk-off sentiment alone.
Instead, the foreign exchange market is increasingly responding to differences in energy exposure between economies.
Currencies are no longer moving primarily on traditional risk-on versus risk-off sentiment alone.
Instead, the foreign exchange market is increasingly responding to differences in energy exposure between economies.
- Energy exporters such as Canada and Norway are benefiting from higher oil prices
- Safe-haven currencies like the US dollar and Swiss franc are attracting defensive flows
- Energy importers, particularly in Europe and parts of Asia, remain more vulnerable
As long as disruption in the Strait of Hormuz persists and global energy markets remain volatile, this divide between energy exporters, safe havens and energy-importing economies is likely to remain a central driver of G10 foreign exchange markets in the weeks ahead.