Dollar Surrenders 90% of Gains as Energy Shock Reshapes Global Currency Markets

The U.S. dollar has sharply retreated in global foreign exchange markets, shedding nearly 90% of the gains it accumulated at its March 2026 peak, according to a new analysis by Intesa Sanpaolo. 

The reversal underscores growing volatility in currency markets, as investors reassess macroeconomic risks tied to energy and geopolitics.

The decline in the dollar has coincided with a rebound in global equities, particularly the S&P 500, suggesting a shift toward risk-on sentiment. However, the bank’s report highlights a notable divergence: nominal bond yields and inflation swaps remain elevated, signaling persistent concerns over structural inflation pressures, largely driven by energy markets.

According to the analysis, fixed income markets have yet to fully price in a lasting resolution to the global energy crisis. As a result, the dollar’s stability remains fragile and closely tied to the durability of the current geopolitical calm.

The report argues that currency movements are no longer dictated solely by traditional risk factors. Instead, they are increasingly shaped by each economy’s exposure to energy dynamics. Currencies of energy-exporting nations have outperformed, while those of energy-importing countries continue to face mounting pressure from higher costs and weaker trade balances.

Although both the euro and the dollar have staged partial recoveries, Intesa Sanpaolo cautions that the rebound may be overstated. The bank notes that markets have yet to fully reflect the prolonged drag of energy shocks on growth prospects in the eurozone.

A key driver behind the dollar’s recent trajectory has been the fragile truce between United States and Iran. While the ceasefire announcement has eased tensions on the surface, underlying risks remain unresolved.

Oil flows through the strategically vital Strait of Hormuz are still constrained, with ongoing concerns about potential blockades and the absence of a comprehensive agreement. These factors continue to exert upward pressure on global energy prices, reinforcing inflationary risks.

In its conclusion, Intesa Sanpaolo emphasizes that the primary force behind the divergence in currency performance is the uneven impact of the energy shock on global trade conditions. 

The result is an increasingly fragmented foreign exchange market, where currencies are effectively split along lines defined by their sensitivity to commodity and energy price fluctuations.