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It is expected to have its best performance since September 2022. Why has the US dollar become the biggest "beneficiary" of the war in the Middle East?
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Official Website]: It is expected to have the best performance since September 2022. Why has the US dollar become the biggest "beneficiary" of the war in the Middle East?". Hope this helps you! The original content is as follows:
XM: It is expected to have its best performance since September 2022. Why has the US dollar become the biggest "beneficiary" of the war in the Middle East?
Although U.S. President Trump’s earlier statement about negotiating with Tehran once ignited people’s hopes of resolving the dispute through negotiations, the positions of all parties have since become tougher. Tensions further escalated on Tuesday when Iran rammed a Kuwaiti oil tanker laden with oil at a Dubai port anchorage, damaging its hull and sparking a fire on board.
Boosted by safe-haven inflows, the U.S. dollar is expected to have its best month since September 2022. The U.S.'s status as the world's largest oil producer and weaker global economic growth expectations have also supported the dollar's strength amid soaring global energy prices.

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Bloomberg data shows that investors have been favoring the U.S. dollar since the global energy market was hit. The closure of the Strait of Hormuz, in particular, has highlighted Europe and Japan's dependence on oil and gas imports. Before the conflict, traders had bet on a weaker dollar but quickly abandoned those bets. They currently hold more than $7 billion in long U.S. dollar positions in the derivatives market, the highest level since December.
Market expectations for the Federal Reserve to cut interest rates this year have been dashed, and inflation concerns have reignited, prompting traders to reassess market sentiment. In options markets, bets on a stronger U.S. dollar dominate the outlook for the month ahead, but analysis of longer-term positioning shows expectations that U.S. dollar strength will weaken.
Why can the US dollar strengthen amid the situation in the Middle East?
With Iran’s attack on Kuwaiti oil tankers, the geopolitical conflict has escalated from “confrontation” to “a direct threat to the global energy lifeline.” The risk of the Strait of Hormuz being closed has a direct impact on Europe and Japan, which are extremely dependent on Middle East energy. In this highly uncertain "black swan" event, the U.S. dollar, as the world's major reserve currency and settlement currency, has its "safe asset" attribute activated. Global capital sells off non-U.S. assets and pours into the U.S. dollar for safe haven. This is the most direct driving force for the strengthening of the U.S. dollar.
Unlike past wars in the Middle East that damaged the U.S. economy, the United States has now become the world's largest oil producer. High oil prices are profit dividends for U.S. energy giants, but pose risks of imported inflation and economic recession to Europe and Japan. This difference in energy status makes the US dollar have the attribute of a "commodity currency" under energy shocks.
Before the conflict broke out, the market generally bet that the Federal Reserve would cut interest rates in 2026 (i.e., the "weak dollar" expectation). However, soaring energy prices have reignited inflation concerns. The content you provided mentioned that "rate cut expectations fell through", which means that the market was forced to quickly switch from "trading interest rate cuts" back to "trading tightening". The time that U.S. interest rates will remain high will be extended, and high interest rates are the core cornerstone supporting a stronger exchange rate.
The conflict has led to weaker global economic growth expectations. When the global economic outlook dims, the relative resilience of the U.S. economy (thanks to energy independence and a large domestic demand market) makes its assets appear more attractive. In contrast, import-dependent economies such as Europe and Japan face greater risks of stagflation, causing the euro and the yen to weaken, thus passively pushing up the U.S. dollar index.
As for the next trend of the U.S. dollar, according to the differentiation signals of the options market, the U.S. dollar may maintain strong fluctuations in the short term, but there will be turning pressure of "strengthening first and then weakening" in the medium and long term. As long as tensions in the Strait of Hormuz remain unresolved or oil prices remain high above $80-90, safe-haven funds will continue to favor the dollar. The derivatives market holds more than $7 billion in long U.S. dollar positions, showing that the current market consensus still tends to be long on the U.S. dollar. This inertia is difficult to reverse in the short term. As energy costs are transmitted downstream, U.S. inflation data may exceed expectations in the short term, which will further suppress interest rate cut expectations and even trigger market speculation about "raising interest rates," providing upward momentum for the dollar.
But high oil prices and high interest rates are a double blow to U.S. stocks and U.S. consumer confidence. If oil prices continue to be too high, the U.S. government may use strategic oil reserves or put pressure on Israel to ease the situation. At that time, the fall in the "energy premium" may lead to a correction in the U.S. dollar. Currently, long positions in the U.S. dollar have reached a new high since December last year. Once the geopolitical situation shows signs of easing (such as a breakthrough in negotiations), or U.S. economic data shows weakness, overcrowded U.S. dollar bulls may liquidate their positions on a large scale, causing the U.S. dollar to fall quickly. If high oil prices eventually drag Europe and Japan into a deep recession, and the United States also suffers a backlash (increased business costs and reduced demand), the market may reprice the pace of interest rate cuts by the Federal Reserve.
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