- The dollar index was up 0.45% at one point on Monday, indicating a gain against a basket of currencies.
- However, a growing consensus among investment banks suggests the dollar’s strength may prove temporary.
- Analysts say the dollar rally is masking concerns over U.S. fiscal policy, trade wars, and weakening international demand for U.S. assets.
The U.S. dollar surged in early trading on Monday, benefiting from its traditional safe-haven status after U.S. military strikes on Iran — but analysts are warning the gains may be short-lived.
The dollar index was up 0.45% at one point, indicating a gain against currencies such as the Japanese yen, the euro and the British pound, as well as the Canadian, Australian and New Zealand dollars. The greenback was last seen trading around 0.4% higher at 9.30 a.m. London time.
“The escalation of the Middle East crisis after the US attacks Iran during the weekend is expected to lead to some of the traditional safe haven effects in the market [such] as the oil price is rising, lower equity prices and a stronger dollar,” said Kirstine Kundby-Nielsen, fixed income and currency research at Danske Bank.
Despite the initial rally, a growing consensus among investment banks suggests the dollar’s strength may prove temporary.
Some analysts say the Middle East conflict is merely masking concerns over U.S. fiscal policy, trade wars, and weakening international demand for U.S. assets, which are likely to regain focus once the immediate crisis-driven demand fades. The dollar index is down more than 8% this year, reflecting the long-term concern.
The U.S. dollar’s immediate strength is tied to fears of how Iran might retaliate, with a closure of the Strait of Hormuz — a waterway vital to the transit of oil — at the top of those concerns.
Yet, RBC Capital Markets analysts caution that the situation is more complex, noting that Iran has asymmetric capabilities to “strike individual tankers and key ports.”
“Hence, we do not believe it is a ‘full closure or nothing’ scenario when it comes to the waterway, and Iran may deploy their asymmetric capabilities to raise the economic cost of the combined US/Israeli operations,” said RBC’s Halima Croft, a former CIA analyst, in a note to clients.
Source: https://www.cnbc.com/2025/06/23/dollar-surge-to-be-short-lived-after-us-strike-on-iran.html