As stocks slump, and even gold and government bonds – traditional havens – tumble as the US-Israeli war in Iran intensifies, the dollar’s rise is notable. Since the conflict began last weekend, the US currency has enjoyed its biggest two-day rally in almost a year.
“The dollar is behaving in a classic way during these periods of risk aversion and uncertainty – and that is the king of the safe haven,” said Paresh Upadhyaya, strategist at Pioneer Investments. “This is escalating beyond risk aversion and a flight to quality, with the market questioning the prospects for global growth and inflation.”
Demand for the dollar has served to counter doubts that have emerged about the greenback as the world’s preeminent reserve currency, quelling the “debasement” narrative that emerged during President Donald Trump’s trade wars.
While a protracted conflict threatens to raise further concerns about U.S. policy decisions and America’s standing on the world stage, the fact is that, at least for now, there is no better alternative to the dollar.
The Bloomberg Dollar Spot Index rose 1.3 percent this week. Against that backdrop, nearly all 16 major currencies tracked by Bloomberg fell on Tuesday, with the euro sliding to its weakest level since November before reversing the decline.
Options markets mirrored the dollar’s spot moves: Traders now have to pay to hedge against a broad dollar rally, a sharp contrast from just a few days ago, when option prices showed historically undecided on the currency’s next move. Risk reversals – a barometer of market positioning – indicated that traders are at their most bullish on the dollar since 2024.
What Bloomberg Strategists Say
“The dollar remains the clearest beneficiary of the Middle East conflict, buoyed by both its safe-haven status and the US’s position as a net energy exporter, while most major currency counterparts are net importers. The dollar’s historical relationship with supply-driven oil shocks suggests there is still room to expand its gains.”
-Skylar Montgomery Koning, MLIV Strategist.
The foreign exchange action comes as global stocks and government bonds fall. Declines in the U.S. Treasury market have pushed yields higher as deepening conflict in the Middle East pushes energy prices higher, raising fears that resurgent inflation will complicate the path for further Federal Reserve interest rate cuts in coming months. In the past, government bonds have temporarily lost their appeal as a safe haven due to oil shocks.
“Investors need to think differently about how markets are moving and how they should be protected, because I don’t think bonds will provide as much protection as they historically should,” said David Wagner, portfolio manager at Aptus Capital Advisors.
‘Straight place’
Stocks fell in New York trading, with the S&P 500 Index ending the session down 0.9%. Brent crude oil, meanwhile, spiked above $85 a barrel for the first time since July 2024 after Iraq cut production from the giant Rumaila oil field. Storage capacity has been tightened due to export disruptions in the Strait of Hormuz, a major shipping route.
“A disruption to oil and gas supplies from the Middle East could have a more negative impact on Asia and Europe than on the US because we produce our own natural gas,” said Leah Traub, portfolio manager at Lord Abbett & Co. “The dollar has regained its rightful place as a safe haven currency.”
Measures of the so-called cross-currency basis – the additional costs that investors pay or receive when they buy dollars abroad rather than in the US – have seen a surge in demand for the dollar against the Swiss franc, the euro, the pound and other major currencies. The move signaled a broader demand for dollar financing amid the spreading conflict.
Unlike the recent oil disruptions from the Middle East, the US has become better insulated from shocks after ramping up shale production in recent years. Once a major net importer of oil and gas, it is now the world’s largest producer and a major exporter – a dynamic that could support the dollar at a time of rising oil prices.
Heading into the launch of US and Israeli strikes on Iran this weekend, the market was largely positioned for a decline in the dollar. Traders had nearly $19 billion in bets pegged to a weaker dollar in the derivatives market, similar to last year’s peak levels, according to the latest Commodity Futures Trading Commission data compiled by Bloomberg through Feb. 24.
“The dollar’s rally is yet another stark reminder that understanding how the market is positioned is incredibly important,” said Bipan Rai, managing director at BMO Asset Management Inc. “In recent months the market has been net short dollars in the spot market due to increased demand for hedging. We expect this theme is likely exhausted for now.”
More stories like this are available at bloomberg.com
Published on March 4, 2026
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