Barclays believes that for bulls, the recent strength of the dollar appears to be a feast, but it is merely a &#34;bitter victory.&#34;
According to news from the Wind-chasing Trading Desk, on March 24th, the Barclays research team report pointed out that while the energy price shock triggered by the escalation of the Middle East situation has boosted the dollar, the dollar's persistent lag relative to interest rate differential benchmarks indicates that the approximately 5% &#34;dollar Risk Premium&#34; is deeply entrenched and difficult to dissipate.
Once the Middle East situation stabilizes in the coming months and energy prices fall, the dollar will face an unavoidable short-term weakening and Pullback.
<h2>Dollar Strong, But Not Strong Enough</h2>
Barclays' report notes that following the outbreak of the Iran conflict in the Middle East, the dollar demonstrated its traditional strengths: energy independence, technological leadership, and economic resilience.
Data shows that for every 10% increase in oil prices, the dollar appreciates by approximately 0.5%-1% against major currencies like the euro and pound.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/978b6074-20ef-4203-bbc2-e9628e59004e.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/978b6074-20ef-4203-bbc2-e9628e59004e.png"/>
(When oil prices rise by 10%, the US dollar exchange rate increases by 0.5% to 1%)
However, the dollar's performance still lags significantly behind traditional benchmarks such as interest rate differentials. For EUR/USD, the fair value measured by the 10-year real interest rate differential is around 1.10, but the actual exchange rate is trading around 1.15.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/699d37e8-6cf7-4014-82a7-cc48fee2ac74.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/699d37e8-6cf7-4014-82a7-cc48fee2ac74.png"/>
(Lagging behind the trend of changes in interest rate differentials)
The core reason for this divergence lies in a persistent &#34;dollar premium&#34; of about 5%. This premium has hovered near the critical threshold of 1 standard deviation (1-sigma) for over a year, far exceeding historical norms.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8bb512a5-e294-42f1-aa57-919c42b980ff.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8bb512a5-e294-42f1-aa57-919c42b980ff.png"/>
(Dollar premium situation)
The report defines the &#34;dollar premium&#34; as: the difference between the actual level of the EUR/USD exchange rate and its &#34;fair value&#34; calculated based on factors such as 10-year real interest rate differentials and relative stock performance (MSCI US/Europe ratio).
Specifically, the report quantifies this premium through a regression model. This model regresses EUR/USD against the aforementioned multiple variables, and the &#34;dollar premium&#34; is the residual of this regression model.
What is supporting this premium? Barclays believes it is increasingly highly correlated with risk factors unique to the US: first, domestic economic policy uncertainty, and second, valuation fluctuations in the US tech sector.
This premium was not eliminated during the escalation of the Iran conflict, meaning that investors currently long the dollar are actually bearing extremely high and unpredictable policy communication risks.
<h2>Structural Factors Are Reshaping the Dollar Logic</h2>
In the past, when global risks rose, the dollar benefited from its safe-haven status, and the premium was often negative, meaning the dollar was more expensive.
But since 2025, the situation has reversed. Uncertainty in US domestic economic policy has soared and turned positively correlated with the dollar premium. Markets have begun to demand compensation for the &#34;domestic policy risk&#34; borne by holding dollars.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fbd60acc-0094-406d-aee8-c68b0532f804.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fbd60acc-0094-406d-aee8-c68b0532f804.png"/>(The premium level reflects policy risks unique to the US)
Another driver is tech stocks. Previously, the rise of the US tech sector symbolized &#34;American exceptionalism&#34; and was positive for the dollar. Now, however, concerns about AI disruption may make the rise of tech stocks negatively correlated with the dollar premium, weakening the dollar's appeal.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e4f9ce02-921d-42ec-a399-2dd3a96a700e.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e4f9ce02-921d-42ec-a399-2dd3a96a700e.png"/>
(Impact of the tech sector)
<h2>Outlook for Near-term Dollar Trends: Soft Landing, Not a Sharp Drop</h2>
Based on this, Barclays provides a balanced outlook for the dollar. Currently, the dollar is supported by high oil prices and geopolitical risks. But if the premium has not disappeared even during periods favorable to the dollar, it is likely to persist after the situation eases.
Therefore, assuming the conflict eases in some form in the coming quarter and oil prices fall, the dollar will face downward pressure. Meanwhile, the domestic US agenda, such as the midterm elections and a possible new Fed Chair, may cause the premium to persist.
However, thanks to AI-related capital expenditures and fiscal tailwinds, the resilience of the US economy will prevent the dollar from a collapse-style decline.
By early next year, however, the market may begin to focus on the fiscal gridlock that could emerge after the midterm elections. If a new fiscal stimulus bill cannot be passed, market expectations for growth in the final two years of the Trump administration may cool.
In summary, Barclays analysts expect EUR/USD to fluctuate within the range seen after April last year for a long time to come.

GOEX

Barclays' report indicates that the energy price shock triggered by the escalation of the Middle East situation has boosted the dollar. However, the dollar's persistent lag relative to interest rate differential benchmarks suggests that an approximately 5% "dollar Risk Premium" has become deeply entrenched and difficult to dissipate. Once the Middle East situation stabilizes in the coming months and energy prices fall, the dollar will face an unavoidable short-term weakening

- Barclays Bank considers the recent strength of the dollar a "bitter victory" for bulls, as ongoing regional instability anchors a 5% "dollar risk premium."  
- While high oil prices and geopolitical tensions currently prop up the dollar, future stability in the Middle East and a potential decline in energy prices may lead to inevitable short-term weaknesses.  
- The report suggests that the dollar's structural logic has shifted, with uncertainty in U.S. economic policy and tech stock volatility contributing to this premium, indicating both risks and resilience in the dollar's outlook.

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Barclays: Dollar Rally is a "Bitter Victory"; Geopolitical De-escalation Will Trigger Pullback