Rabobank’s FX Strategy team argues the Dollar’s safe haven role has been confirmed by recent Middle East tensions and associated market stress. The bank highlights the USD’s dominant share in global FX turnover and reserves, and expects reduced reluctance to hold long Dollar positions as fears of a structural decline in the currency fade.

Dollar strength backed by liquidity and flows

"The uncertainties of the past fortnight have provided a definitive conclusion to last year’s debate over whether the USD had lost its safe haven quality after the April 2025 plunge triggered by the US Administration’s tariff announcements. It has remained our view that the USD’s unmatched liquidity meant that its safe haven status was assured. From investors’ point of view, the need for liquidity will always trump returns in a crisis."

"Last year’s BIS triennial FX report indicated that the USD was on one side of 89.2% of trades, slightly higher than in the previous report and significantly above the levels of any other currencies. This reflects the dominance of the greenback as a global transaction currency and its widespread use in payments systems and supply chains."

"The USD remained relatively stable in H2 last year and, having now proven that it remains a safe haven, we would expect fears that it has entered into a period of long-term decline will abate. This suggests that the market’s reluctance to hold long USD positions may subside."

"For the remainder of this year, the USD will still face uncertainties as to how the Fed will reconcile political pressure to ease with the inflation impulses triggered by the closure of the Strait of Hormuz. Around the world higher energy and fertilizer costs will impact various parts of the supply chain including distribution and processing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)