Hold onto your wallets— the U.S. dollar just spiked on news of military strikes against Iran.
According to CNBC, the greenback surged in early Monday trading due to its safe-haven allure amid escalating tensions, though analysts warn this rally could fizzle out against deeper economic headwinds.
This drama unfolded as U.S. military action targeting Iran sent shockwaves through global markets. Investors flocked to the dollar, pushing the dollar index up by as much as 0.45% at its peak. By 9:30 a.m. London time, it was still trading 0.4% higher.
The dollar’s strength wasn’t random—it gained ground against major currencies like the Japanese yen, euro, British pound, and others. Fears of Iranian retaliation, including potential disruptions in the Strait of Hormuz, a vital oil transit route, fueled this rush to safety.
Iran’s ability to target tankers or key ports adds a layer of uncertainty. As Halima Croft, a former CIA analyst at RBC Capital Markets, noted, “Hence, we do not believe it is a ‘full closure or nothing’ scenario when it comes to the waterway.”
She added, “Iran may deploy their asymmetric capabilities to raise the economic cost of the combined US/Israeli operations.” This kind of asymmetric threat keeps markets on edge, beyond just a full blockade.
Analysts also point to broader market reactions. “The escalation of the Middle East crisis… is expected to lead to some of the traditional safe haven effects,” said Kirstine Kundby-Nielsen of Danske Bank, highlighting rising oil prices and a stronger dollar.
Yet, not everyone sees a doomsday scenario for oil. Jordan Rochester of Mizuho doubts a full Strait closure, suggesting, “Iranian allies such as China [are] likely to be applying pressure to keep oil flows ongoing.” He also noted, “The US is also likely to have made energy infrastructure a red line attached to its support of Israel.” This could temper the worst-case fears of $100-130 per barrel oil prices.
Despite the dollar’s momentary shine, don’t bet on lasting strength. Investment banks caution that this rally masks bigger problems like U.S. fiscal policy missteps and declining global demand for American assets.
The dollar index is already down over 8% this year, signaling long-term doubts. Add to that a global trade war, with the U.S. threatening tariffs up to 50% on EU imports by a July 9 deadline, and the picture darkens.
Even the U.S. Treasury market, typically a crisis haven, isn’t reacting as expected. Kirstine Kundby-Nielsen observed, “Impact on US Treasuries is a bit more uncertain given the significant trade deficit and tariffs.”
Investor sentiment was already sour before this conflict erupted. A Bank of America survey from June 16 ranked shorting the dollar as the third most crowded trade among fund managers.
Macquarie strategists Thierry Wizman and Gareth Berry summed it up on June 20: “We’d suspect that the USD would be sinking lower if it weren’t for the War.” They point to tariff news and relative global data as persistent drags.
For wealth-builders, this is a moment to watch, not leap. The dollar’s safe-haven bump might tempt short-term plays, but long-term risks—trade spats, fiscal softness—suggest caution. Stay diversified, keep cash reserves, and eye Treasury signals for clues on where this heads next.