Karishma Vanjani
The dollar was put to a surprise test on Friday -- it passed the exam, but some assets fared better.
Just as investors were getting comfortable with riskier assets, Israel's attack on Iran dented confidence. On Friday, money swiftly moved out of stocks and into assets that offered protection and safety in times of stress: Gold marked a record and oil shot up. The world's reserve currency, the dollar, was in the mix too as the U.S. dollar index climbed as much as 0.7% initially, though it marked a more modest 0.3% gain by afternoon.
The dollar climb is more striking than gains in other assets. Gold has hit 24 all time-highs this year, while oil is always a logical beneficiary of war. But the dollar has fallen about 10% this year.
The world's biggest banks have challenged the dollar's haven status as the U.S. slaps tariffs on trading partners and Congress marches toward a new tax law that could further widen budget deficits.
The Friday spike in the price of the U.S. Dollar Index verifies the currency is still a beneficiary of global safe haven flows.
"Middle East escalation offers a lifeline for the dollar," wrote Jonas Goltermann, who heads the FX Markets service at Capital Economics. The recovery suggests the dollar's safe-haven characteristics are still intact when it comes to some types of risk-off events, he added.
Still, all isn't good in the dollar world. The dollar's sub-1% rebound pales compared with gains in other havens -- gold gained 1.5%, oil rose 7% -- and does little to help recover ground from this year's fall. The dollar remains at its lowest point since 2022.
Yields on bonds add to the bad news. They are up across the board. Times of war escalation generally mean investors push money into government bonds and yields go lower. The opposite move suggests investors may be selling U.S. debt, which doesn't bode well for the dollar.
The dollar's next move may depends on energy prices. The U.S., unlike European economies, is a net petroleum exporter and any escalation in the Israel-Iran conflict should boost the dollar. The opposite could happen in the absence of further escalation, and the market may just go back to focusing back on the negatives for the dollar.
"We believe oil will be a key indicator to watch for market sentiment, and a peak and roll over in oil prices could signal the time to exit risk-off trades -- even if it happens before the conflict is over," said Daniel Tobon, head of G10 FX Strategy at Citi Research.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 13, 2025 17:29 ET (21:29 GMT)
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