The US dollar index surged on Monday, driven by its traditional safe-haven status following US military strikes on Iran. However, a growing consensus among investment banks suggests that the dollar’s strength may be temporary.
Analysts point to concerns over US fiscal policy, trade wars, and weakening demand for US assets as underlying drivers of the market. Despite the initial rally, many experts believe that the Middle East conflict is merely masking these concerns, which will regain focus once the crisis-driven demand fades.
The dollar index’s short-term gains are largely driven by fears of Iran’s potential retaliation, including a possible closure of the Strait of Hormuz. However, RBC Capital Markets analysts caution that this scenario is more complex than previously thought, and Iran may employ asymmetric tactics to increase the economic cost of US/Israeli operations.
Despite this, Jordan Rochester from Mizuho notes that it’s unlikely the Strait of Hormuz will be completely blocked, with Iranian allies like China likely to apply pressure to keep oil flows ongoing. Meanwhile, investors’ reaction to the crisis is muted, with US Treasury market reacting cautiously despite traditional safe-haven demand.
A global trade war and significant fiscal concerns also compound the issues, making it uncertain whether the dollar’s gains will be sustained in the long term. As fund managers increasingly bet on a decline in the US dollar, momentum builds for any downward move for the currency.
Source: https://www.cnbc.com/2025/06/23/dollar-surge-to-be-short-lived-after-us-strike-on-iran.html