It took less than a week for currency markets to move from shock to something far more serious. 

When we published our previous FX roundup on 6th March, the dominant question was how large the energy shock might become following the escalation between the United States, Israel and Iran. By the end of this week, the debate had shifted significantly. 

Markets are no longer simply asking how high oil prices might rise. They are asking whether global energy flows can be restored at all in the near term. 

Shipping through the Strait of Hormuz remains heavily impaired, oil briefly traded above $100 per barrel during the week, and the absence of a credible strategy to reopen one of the world’s most important energy corridors has forced investors to reassess the global outlook. Currency markets have responded accordingly. 

What began as a geopolitical headline has quickly evolved into something broader. FX markets are now trading the economic consequences of the conflict rather than the conflict itself. 

Put simply, the FX market is no longer pricing a geopolitical headline. It is pricing an energy war.  

The early part of the week was defined by volatility. Energy prices surged as the market digested the scale of the disruption to shipping routes through the Persian Gulf. Brent crude pushed sharply higher and European natural gas prices jumped as traders reassessed global supply risks. Equity markets wobbled and investors moved quickly toward traditional safe havens. In currency markets, the US dollar and Swiss franc benefited from the initial flight to safety, while energy-sensitive economies such as the euro area came under pressure.
At this stage the moves were sharp but largely tactical. Markets were reacting to headlines and positioning defensively while trying to assess whether the disruption would prove temporary. However, as the week progressed it became clear that the situation might not resolve quickly.
 
That realisation triggered the next phase of market repricing.
 

By the middle of the week the narrative had shifted. Instead of focusing purely on the conflict itself, investors began to consider the macroeconomic implications of sustained energy disruption. Higher oil and gas prices feed directly into inflation expectations. That forces markets to reconsider how quickly central banks will be able to ease monetary policy.
Currencies ultimately move on relative growth and interest rate expectations. Once the energy shock began feeding into those dynamics, the currency landscape started to diverge sharply. Some economies benefit from higher energy prices. Others suffer.
 
This divergence has become the defining feature of the current FX environment.
 

The US dollar remains the dominant force in global currency markets. It benefits from two powerful dynamics simultaneously. 
First, geopolitical uncertainty continues to support the dollar’s traditional safe haven status. In periods of global stress, liquidity and security tend to outweigh yield considerations.  
Second, the United States is now a major energy producer. Higher oil prices therefore pose less of a structural threat to the US economy than they do to many of its trading partners. 
This combination has allowed the dollar to remain well supported throughout the week, even as economic data played a secondary role.  
Unless there is a clear ceasefire or credible path toward reopening the Strait of Hormuz, periods of dollar weakness are likely to remain shallow.
 

If the dollar has benefited from the environment, the euro has faced the opposite problem. The Eurozone remains heavily dependent on imported energy. That vulnerability becomes particularly acute during periods of supply disruption. The latest surge in oil and natural gas prices has therefore created a difficult dilemma for the European Central Bank. Higher energy costs push inflation higher and may require tighter policy. At the same time, those same costs weaken growth and erode the region’s trade balance. This combination creates a stagflationary risk that currency markets tend to punish. 

Even as investors begin to price the possibility of ECB rate hikes in 2026, the euro has struggled to attract meaningful support. For now, the euro remains particularly vulnerable against the dollar and energy-linked currencies.
 

Sterling’s performance over the course of the week tells the story of the broader market adjustment. In the early stages of the conflict the pound held up surprisingly well. Rising energy prices lifted UK inflation expectations and forced markets to rethink the Bank of England’s policy path. Only weeks ago investors were expecting multiple rate cuts this year. That outlook has shifted dramatically, with markets now pricing a much longer period of policy restraint. Rising gilt yields initially supported the pound, particularly against the euro.

However, by the end of the week sterling began to show signs of strain. Disappointing UK economic data revealed that the economy had already stalled before the conflict began. January GDP figures showed growth had effectively flatlined, raising concerns that the UK may struggle to absorb another inflation shock. At the same time UK government bonds came under heavier selling pressure than other developed market peers. The rise in yields that had previously supported sterling began to expose deeper concerns around fiscal sustainability and economic fragility. The result was a late-week pullback in the pound across most G10 currencies.
 
Sterling remains resilient relative to the euro, but the week demonstrated that it is far from immune to the broader energy shock.
 

While energy importers struggled, commodity exporters benefited. Canada and Norway have emerged as the clearest currency beneficiaries of the current environment. Higher oil prices improve their trade balances, strengthen fiscal positions and support investment in their energy sectors. The Canadian dollar in particular has outperformed within the G10 complex during the conflict. Norway’s krone has also benefited from the surge in energy prices, although it tends to trade with greater volatility due to its sensitivity to global risk sentiment.
 
In a prolonged energy disruption scenario, both currencies are likely to remain well supported.
 

The Swiss franc has behaved exactly as expected during the crisis. Switzerland’s political neutrality, strong external balance and deep financial markets continue to attract defensive flows whenever geopolitical tensions rise. If market stress intensifies further, the franc is likely to remain one of the most resilient currencies in the G10 universe. 
 

The Japanese yen traditionally performs well during periods of global uncertainty. However, the current crisis introduces an unusual complication. Japan imports roughly 90 percent of its crude oil from the Middle East. A prolonged disruption to energy flows therefore represents a significant economic risk. This creates a tension between the yen’s safe haven appeal and the vulnerability of Japan’s energy supply. The result is a more conflicted performance than is typically seen during geopolitical crises.
 

Commodity currencies have begun to diverge. Australia appears relatively well positioned thanks to stronger domestic data, a still hawkish central bank and exposure to energy and commodity exports. New Zealand faces a more complicated outlook. Higher oil prices could lift inflation and reduce the scope for rate cuts, which may support the currency through interest rate expectations. However, the New Zealand economy remains highly exposed to global trade and rising import costs. That leaves the kiwi caught between competing forces.
 

By the end of the week a clear pattern had emerged. Currencies are no longer trading purely on risk sentiment. They are trading on energy exposure. Safe haven currencies such as the US dollar and Swiss franc remain well supported. Energy exporters including the Canadian dollar and Norwegian krone have strengthened alongside oil prices. Energy importers with stagflation risks, most notably the euro and to some extent the yen, remain under pressure. Sterling sits somewhere in the middle. Rising yields offer support, but the currency remains vulnerable to global risk conditions.

In short, G10 currencies are now being shaped less by domestic data and more by exposure to the global energy shock.
 

Perhaps the most surprising feature of the week has been the resilience of global markets. Despite elevated geopolitical tension, major equity indices remain only a few percentage points below their recent highs. The S&P 500 is still roughly three to four percent below its record levels, the Stoxx Europe 600 has only softened modestly, and the FTSE 100 continues to hover near historic highs. In true geopolitical panic scenarios, markets typically behave very differently. Equity drawdowns of ten to twenty percent are common, volatility spikes sharply and forced deleveraging spreads across financial markets. None of those dynamics have materialised so far. Credit markets tell a similar story. Corporate bond spreads have widened only modestly and high yield markets remain relatively stable. In a genuine financial stress episode, credit spreads tend to blow out rapidly as investors scramble to reduce risk. That has not yet occurred. Volatility indicators reinforce the same conclusion. Equity volatility has risen but remains well below crisis levels. During systemic shocks such as the global financial crisis or the COVID market collapse, volatility surged dramatically. Current readings suggest caution rather than panic.
 
Even the energy market itself, while clearly stressed, has not entered disorderly territory. Brent crude briefly moved above $100 per barrel during the week but has largely remained within a tradable range around the mid to high $90s. In a true supply shock scenario prices would likely surge much higher, potentially toward $120 or beyond, accompanied by extreme daily price swings.
 
Currency markets are also behaving in a structured rather than chaotic fashion. The moves observed this week have largely followed macro logic. The US dollar has strengthened, the euro has weakened, commodity currencies such as the Canadian dollar and Norwegian krone have outperformed and the Swiss franc has attracted safe haven flows. These are consistent macro adjustments rather than signs of systemic market stress.
 
Capital flows tell the same story. Investors appear to be repositioning portfolios rather than exiting markets altogether. Energy companies, defence stocks, shipping firms and commodity assets have attracted inflows while more energy-sensitive sectors have faced pressure. This is portfolio rotation rather than forced liquidation.
 
Taken together, these signals suggest that markets remain cautious but not yet panicked.
 
However, several geopolitical strategists warn that the calm could prove fragile. The real risk lies in the potential escalation of energy infrastructure disruption.
 
If the Strait of Hormuz were to close more completely, if oil prices were to surge toward $120 per barrel or if LNG shipping flows were materially disrupted, markets could shift rapidly from macro repricing toward broader financial stress.
 
That moment has not arrived yet.
 
For now investors appear to be operating under the assumption that the conflict will eventually stabilise and that disruptions to global energy flows will prove temporary. This creates what some strategists describe as “complacent uncertainty.” Markets recognise the risks but have not yet priced the worst-case scenario.

One statistic explains why the Strait of Hormuz matters so much in this context. Roughly 20 percent of the world’s seaborne oil supply passes through the narrow waterway each day, making it one of the most strategically important energy corridors in the global economy. Any sustained disruption therefore has immediate implications for inflation, energy security and global financial markets.
 
For now, however, markets remain cautious rather than panicked.
 

Last week markets were repricing the immediate consequences of the conflict. This week they are questioning the durability of the global energy system itself. Until there is a credible path toward reopening the Strait of Hormuz and stabilising global energy flows, currency markets will continue to divide along clear lines. Energy exporters versus energy importers.
 Safe havens versus vulnerable economies. For now, the message from FX markets is clear. The global economy is adjusting to the consequences of an energy war, not simply reacting to geopolitical headlines. Markets are no longer responding only to events in the Middle East. They are quietly repricing the global energy order that sits beneath the entire financial system.