JPMorgan Chase & Co's bearish stance on the dollar faces its biggest test as Middle East conflict sends oil prices surging. The bank's strategists, who have maintained a negative outlook on the greenback for months while favoring high-beta currencies like the Australian dollar and Mexican peso, now warn that escalating US-Iran tensions threaten their thesis. The strategists had previously assumed an unprecedented commodity market disruption was improbable.

Oil prices jumped the most in four years following US and Israeli airstrikes on Iran, with President Trump suggesting the bombing campaign could last weeks. The Bloomberg Dollar Spot Index rose as much as 0.8% to a five-week high, while the euro fell nearly 1% to $1.1695 and the yen slumped over 1% to 157.71. JPMorgan's team expects higher energy prices will boost the dollar and pressure major peers including the euro and yen.

The bank recommended closing long euro positions, with strategists warning that sustained energy price increases could push the single currency into the $1.10 to $1.13 range. However, they maintained short positions on the greenback against currencies like the Australian dollar and Norwegian krone, which benefit from higher energy prices through improved terms of trade, though they tightened stops to protect gains.