USD: Safe-haven flows return with war risks – Rabobank

Rabobank strategist Molly Schwartz highlights that the US Dollar’s strong performance reflects renewed safe-haven demand as geopolitical risks escalate around Iran. She argues prior “Sell America” calls were driven by positioning and EUR/USD repricing rather than a loss of Dollar safe-haven status. Rising US Treasury yields underscore concerns that war-related energy shocks could complicate the Federal Reserve’s inflation challenge.

Greenback benefits from renewed risk aversion

"Yesterday’s stellar performance of USD also exemplified how calls of “Sell America” in recent months were shortsighted."

"While USD has not been behaving as a safe-haven traditionally would, given the dramatic USD sell-off in H1 2025, we have long argued that this was more about positioning—a repricing of EUR/USD in the aftermath of European announcement of defense spending, and rising USD hedge ratios from foreign investors—than it was a loss of USD’s safe haven status."

"Indeed, recent price action makes it clear that when the going gets rough, investors still flee to the warm embrace of greenback liquidity."

"While inflation is already above the 2% target, and the lagged effects of tariffs are starting to put pressure on core goods, the additional price increases posed by turning the major oil exporter of the world into a warzone may put the Fed in a tricky position."

"US 2 year and 10 year Treasury yields moved in parallel, closing the day up 11bp, which is the greatest single day move since the US-Iranian skirmish last June."

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