The Middle East war boosts the US Dollar Index back to the 100 high point? Analysts pour cold water: this rebound won't last long

Affected by the geopolitical tensions triggered by the Middle East conflict, the US dollar has recently regained its upward momentum. However, analysts generally believe that the foundation for its rebound is weak, as the structural issues that previously dragged the dollar down have not been fundamentally resolved. As a major global oil exporter, the United States benefits from the surge in oil prices. Since crude oil is priced in US dollars, the rise in oil prices directly boosts the demand for dollars. Meanwhile, the Middle East conflict has reinforced the dollar's safe-haven attributes. The dollar index has recently surged, re-establishing itself above the 100 mark, and is now approaching a 10-month high. HSBC foreign exchange analysts pointed out in their latest research report: "The geopolitical tensions in the Middle East once again confirm the dollar's status as the primary safe-haven currency. This attribute has not truly changed compared to the market narrative nearly a year ago." However, several analysts warn that the factors supporting the dollar's short-term strength are insufficient to offset its long-term structural weakness. AJ Bell's investment director, Russ Mold, told CNBC that the fundamental issues that led to the dollar's previous weakness still exist, including uncertainty in US policy, a continuously expanding fiscal deficit, and political pressure on central bank independence. Rising Oil Prices and Safe-Haven Demand Drive Dollar Rebound Since the outbreak of the Middle East conflict on February 28, the global foreign exchange market landscape has changed significantly. As a major oil exporter, the United States directly benefits from the surge in WTI oil prices—since oil transactions are priced in US dollars, the rise in oil prices directly boosts the demand for dollars. Meanwhile, the dollar has once again demonstrated its traditional safe-haven function, while other safe-haven currencies like the yen have shown weakness. European currencies have become the main pressure point in this round of conflict. Due to Europe's heavy reliance on energy imports, it is highly sensitive to the oil price fluctuations triggered by the Middle East conflict, leading to a weakening of both the pound and the euro. In contrast, the United States has achieved self-sufficiency in crude oil and has a stronger ability to withstand the risks of disruptions in the Strait of Hormuz, a vital artery for global oil and gas transportation. Structural Risks Remain, Strong Dollar Difficult to Sustain Despite its strong performance driven by geopolitical conflicts recently, analysts remain cautious about the dollar's outlook. HSBC analysts noted in their report that it is not advisable to fully bet on the dollar's strength at this time, primarily because the macro drivers that supported the dollar's rise in 2022 are no longer in place. This short-term rebound comes after the dollar has just experienced a historically weak period. In the first half of 2025, following the Trump administration's announcement of "liberation day" tariffs in April and then quickly retreating, market confidence in US assets was severely damaged, resulting in the dollar recording its worst half-year performance in over 50 years. Morgan Stanley confirmed in its August report last year that the dollar index fell nearly 10% for the year, marking the official end of a "15-year bull market cycle." AJ Bell's investment director, Russ Mold, attributes the current challenges facing the dollar to three structural pressures: a lack of policy coherence in the US government, a continuously expanding fiscal deficit, and political interference threatening central bank independence. He candidly stated that these characteristics "frankly, investors are more likely to associate them with emerging markets rather than developed economies." ** Regarding the sustainability of the current dollar rebound, analysts generally believe it will depend on the evolution of the situation in the Middle East. The investment director of private bank Arbuthnot Latham told CNBC: "As long as the crisis continues, the dollar is expected to remain strong; but once the situation returns to normal, the pressure for dollar depreciation will be released again. The current dollar valuation is still in a relatively high range, and in the long run, this is the core variable determining its long-term returns."