A safe-haven return after a bruising stretch
The US dollar has strengthened against major currencies in recent weeks, regaining some of its traditional safe-haven status as geopolitical risk and market volatility rose. The rebound follows a sharp slump earlier in 2025, when the dollar posted its worst first-half performance in more than 50 years after President Donald Trump walked back “liberation day” tariffs announced in April, undermining confidence in US assets.
Measured by the dollar index, which tracks the greenback against a basket of major currencies, the currency fell nearly 10% through 2025, which Morgan Stanley said marked the end of a long bull run. Since the Iran war began, however, the index has climbed back to just below 10-month highs.
Oil dynamics and risk aversion boost the greenback
Analysts point to two forces driving the move. First, the US is a major exporter of oil, and the jump in WTI crude has increased demand for dollars because oil is priced in the US currency. Second, investors have leaned into the dollar as a defensive asset during a period of heightened uncertainty.
HSBC foreign exchange analysts said Middle East tensions have reinforced the dollar’s role as a primary safe-haven currency, arguing the latest move is a reminder that the underlying dynamic never truly disappeared, even as the narrative shifted last year.
Europe’s energy exposure pressures the euro and sterling
The dollar has gained against sterling and the euro as Europe once again appears vulnerable to an energy price shock. Many European economies remain heavily dependent on imported fuel, leaving their currencies sensitive to disruptions linked to the Strait of Hormuz, a key shipping route for oil and gas that Iran has closed.
In contrast, the US has become more insulated because of its high crude production and greater energy self-sufficiency, even though global pricing still feeds into domestic costs.
Why some see the rally as temporary
Several analysts caution that the dollar’s bounce may not have lasting power. HSBC noted that some of the forces that helped propel a powerful dollar rally in 2022 are not present in the same way today. Others argue the broader issues that weakened the currency before the war have not been resolved.
Russ Mould, investment director at AJ Bell, said those pressures include a US policy backdrop that is difficult for markets to read, large fiscal deficits, and growing political pressure on central bank independence. He added that these traits can make investors uneasy and resemble risk factors more often associated with emerging markets than developed ones.
Gold remains a competing hedge narrative
Mould also said that even though gold has not surged since the conflict began, the longer-term drivers behind interest in the metal remain, including rising Western government debt and expectations that US wartime spending could add to fiscal strain.
