The DXY index, which tracks the performance of the US dollar, touched a yearly high of 99 on Thursday. The spike occurred after the Israel-Iran war, as investors flocked to the currency for safety. While some commentators say that the USD’s safe-haven status is back, foreign exchange strategists think otherwise. They expect the USD to turn bearish after the conflict is brought under control.
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The US dollar’s recent rally is not a flight to safety, argue most of the FX strategists. Jane Foley, the Head of FX Strategy at Rabobank, doubled down on her prediction on the USD. “We haven’t changed our stance. We’re continuing to expect euro-dollar and various dollar crosses to trade choppily this year,” she said.
“But is the US dollar as safe as it used to be? Probably not, because if it was, we wouldn’t be having this debate over the last year or so in the first place,” she added. Foley revealed that the USD could enter choppy waters again after the Israel-Iran conflict cools down. Therefore, it is not advised to go all in on the currency.
Dan Tobon, Head of G10 FX at Citigroup, said that even analysts are not interested in looking at the US dollar. “I’ll constantly have these client calls where one person on the team is dollar-bullish, one is dollar-bearish, and the other person just decides, ‘I’m not even going to look at the dollar’,” he said.
He added that the uncertainty stems from low confidence in the US economy and the labor market. “This uncertainty on how the US economy and the labor market in particular will evolve from here. The range of outcomes is tremendous. And that uncertainty for now is actually keeping the euro-dollar effectively pegged in a range.”
