The US dollar is poised to find continued support in currency markets as the Strait of Hormuz remains largely closed to commercial shipping, according to analysts tracking the geopolitical situation. The closure, which has persisted for several days, has disrupted global oil supply routes and driven crude prices higher, reinforcing demand for the dollar as a safe-haven asset. Sterling has traded lower against the greenback, with GBP/USD slipping to around 1.2450, down 0.6% in early London trading.
The FTSE 100 fell 0.8% to 7,420 points in morning trade, dragged lower by energy-sensitive sectors and a stronger dollar weighing on multinational earnings. Shell and BP both saw shares decline by more than 1.5% as investors priced in higher operational costs and potential supply chain disruptions. Analysts at ING noted that the dollar's resilience is likely to persist "as long as the Strait remains effectively closed," adding that currency markets are pricing in a prolonged period of uncertainty.
For UK investors, a stronger dollar means that overseas earnings from US-focused holdings become more valuable in sterling terms, but it also raises the cost of imported goods and raw materials. The pound's weakness against the dollar could push up inflation, as many commodities, including oil, are priced in dollars. This creates a dilemma for the Bank of England, which is balancing the need to control inflation against the risk of stifling economic growth.
Sector-wise, energy and defence stocks have outperformed in recent sessions, while travel and retail shares have lagged on fears of reduced consumer spending. The broader market remains cautious, with the FTSE 250 falling 0.5% to 19,100 points. Analysts at Barclays commented that the situation "adds another layer of complexity to an already fragile global economic outlook."
The implications for UK pension holders are significant, as many pension funds hold a mix of domestic and international equities. A sustained dollar rally could boost the value of overseas assets but may also lead to higher volatility in bond markets, particularly if central banks respond with tighter monetary policy. Investors are advised to review their exposure to currency risk and energy price sensitivity.