The dollar has surged as investors flee to safe-haven assets following the war in Iran. For some analysts, this upward move dispels doubts and the debate over the dollar’s role as a safe-haven asset. An argument that appears to remain intact, given that it continues to maintain its traditional correlation with gold, which has shown a markedly opposite performance to that of the dollar.
“As is typical during periods of heightened market tension, the dollar has consolidated its position as the ultimate safe-haven asset thanks to its deep liquidity. It has also been supported by the rise in oil prices, as the United States is now a net energy exporter,” analysts at Ebury explain. More broadly, U.S. assets are clearly outperforming those in the rest of the world, reversing the “sell America” trend that dominated following last year’s tariff disputes.
The “War” Effect
The central scenario currently priced in by markets is a relatively short war, lasting around one month, in line with the estimates expressed by Trump. “As long as this time horizon remains plausible, further gains in the dollar could remain limited and may even give way to a correction if the conflict ends toward the end of the month or early April,” says Matthew Ryan, Head of Market Strategy at Ebury.
However, the expert warns that the main risk for markets would be a regional escalation of the conflict or a prolonged closure of the Strait of Hormuz, which could push oil prices above 100 dollars per barrel. In this context, European currencies—especially the euro, the Swedish krona, and the currencies of Central and Eastern Europe—have been among the hardest hit, partly due to their high sensitivity to rising gas prices, which in Europe have increased by nearly 50%.
“The Canadian dollar has emerged as another clear winner, thanks to Canada’s geographic isolation and its position as a net energy exporter. Alongside it, the Norwegian krone, also supported by oil, and the Swiss franc topped the currency performance rankings last week,” analysts at Ebury note.
From Trump to the Fed
In the view of Patrick Artus, Senior Economic Advisor at Ossiam AM, an affiliate of Natixis IM, Donald Trump wants a weaker dollar to improve U.S. price competitiveness. However, after the outbreak of the war in Iran, the dollar strengthened again. According to the expert, “Trump welcomes a depreciation of the dollar and would like the Fed to significantly cut its policy rates to amplify that depreciation.” However, he adds: “The Trump administration’s desire to weaken the dollar does not make economic sense. A deliberate policy of dollar depreciation risks triggering a balance-of-payments crisis in the United States, as the prospect of a weaker dollar would discourage foreign investors, would not significantly boost U.S. export volumes, and would increase the price of imports in the United States.”
In this regard, expectations for interest rate cuts in the United States have been revised far less aggressively than in Europe. “This is due to the smaller impact that rising oil prices could have on U.S. inflation compared with Europe. Futures markets are still comfortably pricing in at least one additional rate cut by the Federal Reserve before the end of 2026, with around a 50% probability that it could take place in June,” Ebury notes in its latest report.
Volatility in the Currency Market
For now, experts believe the U.S. dollar is likely to remain supported in the short term, as energy markets continue to price in potential supply disruptions. However, they warn that structural headwinds against the greenback remain in place. “We believe it is important for investors to manage their currency allocations, as potential government interventions could limit the weakness of some Asian currencies. In addition, structural factors weighing on the dollar remain present, and fiscal spending in Germany should provide additional support for the euro,” analysts at UBS Global Wealth Management emphasize.
According to Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, with currency volatility likely to remain elevated in the near term, “investors should manage their currency allocations to reduce the risk that large moves could undermine their financial objectives, including through the use of hedging tools.” He adds: “We continue to favor the Australian dollar, the New Zealand dollar, the Norwegian krone, the Chinese yuan, and some other higher-yielding emerging market currencies in our global portfolios.”
