Carter Johnson, Ruth Carson and Winnie Hsu
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(Bloomberg) -- The dollar’s muted rally against major peers after Israel’s strikes on Iran reinforced the impression that the greenback’s role as a global haven currency is fading.
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A Bloomberg gauge of the US dollar gained as much as 0.6% at one point on Friday after Israel’s attacks on Iranian nuclear facilities stoked fears of a wider conflict in the Middle East. However, the currency pared much of its advance and closed some 0.2% higher in New York.
The modest recovery leaves the greenback just above the three-year low it hit this week after President Donald Trump threatened fresh levies against global trading partners. The dollar has slid during the past five months as Trump pushed ahead with tariffs, which have raised concerns over the US economic outlook and fueled speculation that foreigners will shun American assets — the so-called Sell America trade.
“Middle East tensions are a risk to navigate rather than a game changer for the bearish dollar view,” JPMorgan strategists including Meera Chandan and Arindam Sandilya said to clients in a note Friday. “We do not expect the dollar impact to be more pronounced or durable than this at this stage.”
The day’s trading pattern was a far cry from decades past, when international crises would typically fuel gains in the greenback and Treasuries, long considered havens in part because of their liquidity and confidence in the US as a leader in the global economy.
The 10-year US Treasury yield rose about five basis points on Friday as surging oil prices stoked inflation worries.
There are some signs that the gloomy stance toward the dollar is easing a bit. For example, options traders — while still broadly bearish on the US currency’s prospects — have moderated their negative views in recent weeks and are banking on a pause in the greenback’s sharp decline.
“The source of shocks to global risk and growth have been more concentrated in the US so far this year,” Goldman Sachs Group Inc. strategists Stuart Jenkins, Kamakshya Trivedi and Teresa Alves said in a report to clients on Friday. “If that source were to shift more to the rest of the world, the dollar may resume trading with more safe-haven type characteristics.”
The US’s position as the world’s largest oil producer likely helped buoy the dollar on Friday as crude futures soared, analysts said. So did the possibility of a squeeze in short positions against the greenback.
