DBS Group Research economist Philip Wee highlights that while risk aversion stemming from the Iran conflict would typically bolster the US Dollar's haven appeal, this support may be short-lived due to several headwinds [1]. Wee notes that the USD is facing a 'hawkish wall' after recent G10 central bank meetings, which saw a series of rate hikes from other major economies contrasted with a pause from the Federal Reserve [1]. This divergence in monetary policy is creating pressure on the Dollar, as investors weigh the relative attractiveness of other currencies [1].
Additionally, US Treasury bonds are experiencing pressure as fiscal concerns intensify, particularly following the Pentagon's request for a substantial budget increase related to the Iran conflict [1]. Wee draws parallels to last year's Liberation Day tariffs, which led to a credibility hit for the USD and a concurrent sell-off in US stocks and bonds, raising stagflation worries [1].
The combination of hawkish G10 central banks, a Fed pause, and mounting fiscal concerns suggests that the USD's traditional safe-haven status may be undermined in the current environment [1].
CONCLUSION
The USD's haven appeal is being challenged by hawkish G10 rate hikes and rising US fiscal concerns, potentially limiting its upside despite geopolitical risk. Investors may need to reassess the Dollar's role as a safe haven in light of these policy and market dynamics.