Geopolitical storms are brewing, and the U.S. dollar is riding the wave as a haven.
According to Yahoo! Finance, as tensions escalate in the Middle East following Israel's attack on Iran on June 13 and subsequent U.S. strikes, the dollar has gained ground in early trading while markets brace for Iran’s response.
The conflict kicked off earlier this month when Israel targeted military sites in Tehran and western Iran. This initial assault, followed by resumed bombings, set off a chain reaction of market uncertainty. Investors, wary of broader implications, began seeking safer assets.
Then came the U.S. strikes, intensifying the situation. The dollar saw modest gains against the euro and most major currencies as Asian markets opened for the week. A Bloomberg gauge shows the dollar up less than 1% since the conflict began on June 13.
Yet, this uptick is small compared to the dollar’s traditional role as a safe-haven asset. Recent months have seen the greenback weakened by trade and fiscal policies under President Donald Trump. Still, some strategists see potential for a turnaround if tensions persist. “The biggest trade now is short dollar, but this might reverse its fortunes,” said Neil Birrell, chief investment officer at Premier Miton Investors.
Meanwhile, crude oil futures are spiking amid fears of supply disruptions. Brent futures have surged 11% to $77 a barrel since the escalation started. With the Middle East accounting for a third of global oil output, the stakes are high.
Traders are gearing up for another oil price surge expected to restart on Monday after the U.S. actions. A key concern is Iran’s potential response, including blocking the Strait of Hormuz, a vital passage for oil and gas shipments. Such a move could send prices soaring even higher.
Morgan Stanley’s oil analysts warn that a fundamental disruption to global supply through this chokepoint could push prices “much higher,” though a quick resolution might drop them back to the $60s per barrel.
Equity markets are feeling the heat as well, with U.S. equity contracts slipping due to heightened demand for safety. The MSCI All Country World Index has retreated 1.5% since Israel’s attack, while the S&P 500 remains just 3% below its February peak despite recent declines. Fund managers have trimmed stock holdings, and hedging demand is up, suggesting a deep selloff might be less likely.
Treasuries, on the other hand, have edged higher as investors seek refuge. In the $29 trillion U.S. Treasuries market, yields initially dipped but later reversed due to inflation worries. The 10-year note yield rose less than two basis points to close at 4.38% on Friday since June 13.
For wealth builders, this volatility signals caution but also opportunity. Keep an eye on oil-sensitive assets and consider reallocating to safer havens like Treasuries if tensions drag on.
Iran has vowed “everlasting consequences” for the bombings and reserved all options to defend itself. The world watches anxiously for its next move, with blocking the Strait of Hormuz or targeting U.S. forces in the region as possible retaliations. Such actions could trigger larger market swings.
“All eyes are on Iran’s response now and if they obstruct the Strait of Hormuz,” said Jayati Bharadwaj, strategist at TD Securities. She notes this could bolster safe havens like the dollar and oil-sensitive currencies.
For investors, the message is clear: stay vigilant. Geopolitical risks are back on the table, and markets hate uncertainty. Diversify, monitor energy prices, and don’t bet against the dollar just yet—safe havens might be your best play in this high-stakes game.