(Corrects firm name in paragraph 22 to State Street Investment Management, not State Street Global Advisors)
By Saqib Iqbal Ahmed
NEW YORK, March 2 (Reuters) – The dollar’s sharp rally following U.S. strikes on Iran is reassuring investors the currency still functions as a global safe-haven, with the greenback reclaiming its traditional crisis-era role as geopolitical tensions flare in the Middle East.
The renewed safe-haven bid comes after months of growing doubt about the dollar’s reflexive appeal during times of stress, skepticism that took root when the currency failed to rally during last year’s tariff-induced global market selloff.
On Monday, the U.S. dollar appreciated across the board, with the dollar index rising nearly 1%, its best day in seven months.
“Today is, I would say, a classic risk-off day from a U.S. dollar perspective,” Eric Theoret, FX strategist at Scotiabank, said.
“I think ‘Liberation Day’ was obviously a bit of a break with the historical analogs that we’ve had,” he said, referring to the announcement of sweeping U.S. tariffs on April 2, 2025, which triggered a sharp global market selloff, including for the dollar.
That’s welcome relief for the dollar, whose long-held status as a safe-haven asset had been challenged in recent months by the euro, the yen, as well as gold.
Working in the dollar’s favor was the depth and robustness of U.S. markets, according to analysts.
“If you’re looking to de-risk and de-risk in size, the U.S. Treasury market is really the only one that can handle those flows,” Theoret said. When global investors flood into Treasuries during a crisis, that drives up demand for the dollar.
Lack of alternatives to the dollar makes it hard for investors to stay away in times of heightened volatility, Don Calcagni, chief investment officer at Mercer Advisors in Denver, said.
“So, I’m perhaps not surprised that we’re still seeing the dollar perform as a safe-haven asset,” Calcagni said.
SAFE-HAVEN APPEAL INTACT
The dollar’s failure to capture safe-haven flows during last year’s market turbulence stemmed largely from the fact that the U.S. itself was the source of the risk, with Washington’s tariff offensive triggering the global selloff and leaving investors with little appetite to seek refuge in the currency of the country generating the uncertainty, analysts said.
“Liberation Day forced the USD’s centrality to diminish … investors started to favor the (rest of world),” Benjamin Ford, researcher at macro research and strategy firm Macro Hive, said.
“The oil shock then has scared global investors out of positions that they have been chasing over the past three months and landed them net long USD,” Ford said.
While the dollar’s safe-haven appeal might have been dented when investors were concerned about a shock stemming from inside the U.S., when it’s an international geopolitical crisis, its safe-haven appeal seems intact, John Velis, Americas macro strategist at BNY, said.
“Certainly, the evidence today suggests that,” Velis said.
NOT SO FAST
Still, not everyone is sure the dollar will always be as robust a haven in other circumstances.
“I think there will be some reassurance from today’s activity that the USD still has safe-haven characteristics,” Jane Foley, head of FX strategy at Rabobank, said.
“However, I think the debate is not over yet,” she said.
On Monday the dollar was supported not just by haven flows but also by the U.S.’s status as a net energy exporter, insulating the American economy from oil price shocks that typically hit import-dependent economies.
Aaron Hurd, senior portfolio manager at State Street Investment Management, is skeptical the dollar would perform as well faced with a shock that is not linked to energy or concerns over liquidity.
“If it’s just a general kind of economic fear, I think the dollar will be far less effective,” he said.
Given the high fiscal deficits in the U.S., volatility in policy and generally high level of global exposure to U.S. assets, Hurd expects the dollar to, on average, sport a higher correlation to risk assets during big shocks.
Nearer-term, Macro Hive’s Ford sees the dollar’s path hinging on oil’s direction.
“If we continue in this oil up, risk appetite down world, then USD will continue to find a bid,” he said.
“However, if oil sinks, you could see typical safe-havens return to the forefront,” Ford said, who sees such a scenario favoring the Swiss franc and the Japanese yen.
(Reporting by Saqib Iqbal Ahmed; Additional repoting by Laura Matthews; Editing by Megan Davies)
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