US Dollar Strengthens Amidst Conflict with Iran: What is the Fate of the Rupiah?
The US Dollar remained stable against most major world currencies during trading on Monday, 18 May 2026. Global markets continue to be influenced by rising oil prices and escalating tensions in the Middle East. The continuous rise in oil prices has prompted investors to return to safe-haven assets such as the US Dollar. Simultaneously, global bond markets are under pressure due to inflation concerns and the potential for interest rate hikes.
The Euro was traded at US$1.1621, down approximately 0.03 per cent. The Pound Sterling also weakened by 0.03 per cent to US$1.3320. The Australian Dollar fell 0.2 per cent to US$0.7132, while the New Zealand Dollar remained relatively stable at US$0.5837. The US Dollar Index, which measures the strength of the greenback against a basket of major currencies, was recorded at 99.325. Barclays analysts stated that current market conditions support the strengthening of the US Dollar.
“It is evident that conditions for risky assets and bonds are worsening, while the opportunity for a dollar rally continuing this week is increasingly opening up,” wrote a Barclays analyst, as quoted from Reuters on Monday, 18 May 2026. According to Barclays, the US Dollar has the potential to rise by approximately 0.5 per cent to 1 per cent for every 10 per cent increase in oil prices. Global oil prices rose by more than 1 per cent on Monday. Brent crude even breached the US$110 per barrel level again after a nuclear power plant in the United Arab Emirates was attacked by a drone.
Furthermore, the market is highlighting the lack of significant progress in efforts to end the conflict between the US, Israel, and Iran. Rising energy prices have also triggered sell-offs in global bond markets as investors fear a resurgence of inflation. The yield on 10-year US government bonds rose to 4.6310 per cent, approaching its highest level since February 2025, while the two-year bond yield touched 4.1020 per cent.
Christopher Wong, a foreign exchange strategist at OCBC, stated that the US Dollar still has the potential to strengthen if bond yields remain high. “In the short term, the US Dollar is likely to remain in demand if yields stay high and the market continues to price in a more hawkish response from the Fed,” he said. Based on the CME FedWatch Tool, the market currently estimates a greater than 50 per cent chance that the Federal Reserve will raise interest rates again in December 2026.