Dollar’s Haven Status Faces a Key Test After Israel Strikes Iran
(Bloomberg) -- The dollar’s muted rally against major peers after Israel’s strikes on Iran reinforced the impression that the greenback’s role as a global haven is fading.
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A Bloomberg gauge of the US currency gained as much as 0.6% at one point on Friday after Israel’s attacks targeting Iranian nuclear facilities stoked fears of a wider Mideast conflict, but the dollar pared much of the advance by midday in New York. It was last up about 0.1%.
The modest recovery leaves the greenback just above the three-year low it hit this week after President Donald Trump threatened fresh levies against global trading partners. The dollar slid the past five months as Trump pushed ahead with tariffs, which have raised concern over the US economic outlook and fueled speculation foreigners will shun American assets — the so-called Sell America trade.
“Dollar sentiment has taken a real hit,” Sonja Marten, DZ Bank’s head of FX and monetary policy, told Bloomberg Television on Friday. It would take “a complete escalation in the Middle East” to extend the dollar’s gains, she said.
The day’s trading pattern was a far cry from decades past, when international crises would typically fuel gains in the greenback and Treasuries, long considered havens in part because of their liquidity and confidence in the US as a leader in the global economy.
The 10-year US Treasury yield rose about 7 basis points on Friday as surging oil prices stoked inflation worries.
There are some signs that the gloomy stance toward the dollar is easing a bit. For example, options traders — while still broadly bearish on the US currency’s prospects — have moderated their negative views in recent weeks and are banking on a pause in the greenback’s sharp decline.
“The source of shocks to global risk and growth have been more concentrated in the US so far this year,” Goldman Sachs Group Inc. strategists Stuart Jenkins, Kamakshya Trivedi and Teresa Alves said in a report to clients on Friday. “If that source were to shift more to the rest of the world, the dollar may resume trading with more safe-haven type characteristics.”
The US’s position as the world’s largest oil producer likely helped buoy the dollar on Friday as crude futures soared, analysts said. So did the possibility of a squeeze in short positions against the greenback.
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