Inflation concerns have existed even before the recent geopolitical tensions, due to various global developments such as the long-standing easing cycle and U.S. tariffs on trade. However, inflation worries have significantly increased due to recent tensions in the Middle East, as oil supplies decrease, which has a major impact on global energy and transportation costs. The longer these tensions persist, the greater their impact on inflation in Europe and the U.S. For example, in the United States, CPI inflation is expected to rise above 3%, which will be a primary focus for the Federal Reserve.

This has been a major driver of the U.S. dollar, which has appreciated against other global fiat currencies over the past week, following a two-week bullish divergence from macro lows. This has had a significant impact on asset markets, including stocks, commodities, and cryptocurrencies, all of which have shown relative weakness against the DXY during this period. The DXY is now approaching the 100 level again, and its response in this zone will also depend on macro developments, which are crucial for further refining our macroeconomic theories this year. Remember, the performance of the DXY has a huge influence on investor hedging and investment behavior, and it remains one of the key drivers of asset markets.