The USD rallied throughout Monday's trading session as the US strike on Iran reassured investors that the currency serves as a global safe haven, reclaiming its traditional role amid the crisis as geopolitical tensions escalate in the Middle East.
At 9.10am, the US Dollar Index (DXY) was at $98.527, down a slight 0.2% since it opened early Tuesday in Asian trading.
Safe-haven bids for the US dollar have recovered after months of doubts about its role as a safe-haven asset during market stress. The doubts arose when the dollar failed to gain ground during last year's global sell-off driven by tariff tensions.
On Monday, the US Dollar rose broadly with the dollar index up nearly 1%, its best daily performance in seven months.
The move was seen as a sign that interest in the dollar as a safe-haven asset is regaining strength amid geopolitical uncertainty.
The announcement of massive US tariffs on April 2, 2025, dubbed “Liberation Day,” had previously triggered a sharp sell-off in global markets, including pressure on the dollar.
At the time, the US itself was seen as a source of risk, reducing the currency’s appeal as a safe haven.
However, the current situation is different.
The dollar’s status as a safe haven, previously challenged by the euro, yen and gold, is now gaining support. Analysts believe that the depth and liquidity of US financial markets, particularly the Treasury market, remain the main factors supporting the dollar.
The US Treasury market is considered the only market capable of absorbing large-scale capital flows as global investors reduce risk.
As international funds flowed into Treasury bonds during the crisis, demand for the dollar also increased directly.
The dollar’s weakness last year was also linked to the oil shock that changed the trading strategies of global investors. Uncertainty stemming from within the US made investors cautious about adding to their holdings in the currency.
However, when the crisis is caused by international geopolitical factors rather than domestic US policy, the dollar's appeal as a safe haven asset appears to remain intact.
In addition to the protectionist trend, the dollar is also supported by the US's position as a clean energy exporter. This status helps to protect the American economy from the surge in oil prices that typically pressure energy-importing countries, thus reinforcing the fundamental support for the US Dollar in the current environment.
