USD: What past crises tell us, and what matters next
The below table shows a clear pattern across recent US–Iran episodes: the USD typically firms in the first week, and, crucially in the modern era, often holds or extends those gains over 1–3 months. We’re now approaching one week since “Operation Epic Fury” began, and the market reaction is behaving much as history would suggest when risks escalate through an energy channel. A simple rule of thumb continues to travel well: the USD tends to appreciate ~0.5–1.0% for every +10% move in oil. This week’s price action is in that zone, DXY is up ~1.6% since last Friday while WTI is up ~18%, a roughly 0.9% per +10% oil beta, right in the historical range.
There are useful historical parallels in the table. In the post‑2018 cluster, JCPOA withdrawal (2018), Soleimani (2020), Ain al‑Asad (2020), Operation True Promise II (2024), the USD generally popped at 1 week and stayed firmer over 1–3 months (with True Promise II near the top of the distribution at ~+7% over 3 months). On average since 2018, DXY has gained about +0.4–0.6% over 1 week/1 month, and about +1.6% over 3 months, with many incidents showing follow‑through rather than quick mean reversion. By contrast, the older cohort (e.g., Iran‑Contra) contains some notable 3‑month negatives, reminding us that medium‑term outcomes used to be more two‑sided.
This context also helps frame today’s situation: Epic Fury is not “Operation Midnight Hammer” (2025). Midnight Hammer was calibrated, three nuclear facilities, narrowly scoped, and the chart shows it produced a brief USD lift (~+0.5% at 1 week) that faded by 1–3 months. Epic Fury is broader in scope and signaling, so the near‑term USD impulse is naturally stronger and more consistent with the 2018–2024 “risk‑premium” episodes.
Oil remains the main transmission channel, but recent history is not necessarily reassuring through 2024–2025, crude repeatedly failed to sustain rallies even as conflicts persisted, admittedly they were contained, with little durable impact on physical supply. That’s why the 1‑week USD pop in those episodes often softened when oil cooled. The same conditional logic likely applies now. If oil’s spike moderates (shipping flows normalize, inventories rebuild, OPEC+ messaging steadies), the USD’s energy‑beta should fade, pulling the 1–3‑month DXY path toward the modest long‑run averages you see at the bottom of the table. If, instead, oil strength persists (or broadens into rates and global risk premia), the modern‑era pattern, positive excess returns and risk‑adjusted gains out to ~3 months, becomes the more relevant analogue. In short: near term, the USD is doing what the table says it should; the next leg will be decided by whether the oil impulse endures or fades.
A final perspective on horizon risk: when we extend the lens beyond six months, the linkage between the initial USD reaction and the eventual outcome largely breaks down. In our event study, the correlation between +5‑day and +126‑day DXY returns is effectively zero (~0.00), even though medium‑term horizons still “travel together” (e.g., 21D↔63D ≈ 0.72, 63D↔126D ≈ 0.76). In plain English: the first week can tell you something about the next few weeks, but it doesn’t explain what happens six months and beyond, that phase is driven by whether the shock evolves into sustained fundamentals (oil/supply, rates, global risk), not the size of the initial pop.
EUR: Why is the euro under pressure?
The euro has come under heavy pressure this week as the Middle East conflict drives a sharp repricing in energy markets and, by extension, Europe’s macro outlook. EUR/USD is down around 2% as oil has surged more than 15% and European natural gas briefly doubled — a combination that hits Europe far harder than the US given the bloc’s reliance on imported energy.
This is the same vulnerability that dragged the euro below parity during the 2022 energy crisis, and the mechanism hasn’t changed: higher energy costs squeeze real incomes, weaken growth prospects and complicate the disinflation path. The duration of the shock will determine whether EUR/USD gravitates towards $1.12 or finds support closer to $1.15, but for now the bias remains lower. Until Dutch TTF prices meaningfully retrace, EUR rallies are likely to be short‑lived and offer opportunities to fade.
Markets are already adjusting ECB expectations. A renewed inflation pulse from energy leaves the ECB in a difficult position and the market now assigns roughly a one‑in‑three chance of another hike by year‑end — a reminder that Europe’s inflation problem is more sensitive to commodity shocks than the US.
Beyond Europe, Asian currencies face an additional layer of risk given their dependence on fuel shipments through the Strait of Hormuz, where flows have slowed sharply. That dynamic reinforces broad USD strength and adds another headwind for EUR via the global risk channel.
Overall, unless energy prices retreat, the euro will struggle to regain traction as markets weigh the twin risks of weaker growth and stickier inflation — a combination that tends to widen Europe’s risk premium and keep EUR/USD on the defensive.
GBP: Yield advantage but risk-off trap still open
Sterling is outperforming the euro this week, even though the UK shares many of Europe’s energy vulnerabilities. GBP/EUR has pushed above €1.15 and is trading near a one‑month high, up more than 0.8% this week. If the move holds, it would mark the strongest weekly gain since April 2025 and snap a four‑week losing streak.
The driver is the rates channel. UK gilt yields have risen more sharply than their European counterparts as markets scale back expectations for Bank of England easing. Investors now see only one more cut in 2026 — and some economists warn there may be none at all. That relative yield support is giving sterling a lift, but it’s not an unqualified positive. Higher yields help at the margin, yet if the energy shock morphs into a more persistent squeeze on growth and real incomes, the UK edges toward a stagflationary mix that is typically negative for the currency.
A bigger risk sits in the background: what happens if global markets crack. Equity markets have held up OK so far, reflecting hopes that diplomacy will contain the conflict. But if oil and gas prices continue to rise and stay elevated, the risk of broader liquidation grows. History shows sterling is highly vulnerable during major risk‑off episodes, and that sensitivity hasn’t gone away.
For now, momentum has improved though. GBP/EUR has cleared its 50‑day moving average and the daily RSI, at 55 and rising, signals building upside pressure. But the sustainability of the move hinges on whether the energy shock fades or intensifies into a broader risk-off story — and whether the UK’s fragile macro mix can withstand another external hit.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: March 02-06
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
