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NEW YORK – Deutsche Bank and Wells Fargo & Co are among banks declaring the US dollar’s war-driven haven rally is likely over, as the fragile ceasefire between the United States and Iran prompts investors to seek riskier assets.
The banks are arguing that it is time to embrace bets against the greenback, and global investors seem to be doing just that. They have boosted dollar hedging ratios to a two-year high, according to State Street. In the options market, meanwhile, confidence in the dollar has faded, with positioning the least bullish in weeks.
The Bloomberg Dollar Spot Index, which tracks the performance of the US currency against a basket of leading global currencies, surged in March as the war roiled global markets, drawing investors to the world’s primary reserve currency, traditionally seen as an oasis during times of crisis.
But the dollar has surrendered most of that advance over the past week, and is almost back where it was before the fighting erupted at the end of February.
The upshot is that with the haven aura fading, investors are once again focusing on the headwinds that drove the dollar down 8 per cent in 2025 – its worst performance since 2017 – including the prospect of Federal Reserve interest rate cuts.
“There is clear rotation out of safe havens like the dollar back into risky assets,” Ms Kathleen Brooks, research director at broker XTB in London, wrote in an e-mail. “If the US-Iran conflict does come to a resolution soon, I see a longer period of weakness for the dollar ahead.”
The Bloomberg dollar gauge is down about 1.4 per cent since the US and Iran agreed to a truce on April 7. Risk-sensitive currencies, led by those from Scandinavia, New Zealand and Australia, are up roughly 3 per cent versus the greenback in that period.
Pakistan is trying to mediate an extension to the truce beyond its official expiry date next week, but the situation remains fraught.
The fragility of the truce – and the ongoing double blockade of the Strait of Hormuz by the US and Iran – underscores the peril of getting bearish on the dollar too quickly, especially if a breakdown in talks sparks a fresh rally in oil and pushes out bets on Fed easing.
Ms Brooks at XTB lays out some of the challenges for the US currency, beyond expectations for the Fed to eventually cut rates while markets anticipate hikes elsewhere.
She points to potential worries about the Fed’s independence, with Mr Trump’s threat this week to fire chair Jerome Powell if he does not leave that post “in time”, creating a possible scenario where the President appoints an ally as interim chair while nominee Kevin Warsh awaits confirmation.
“This could lead us back to the dollar debasement theme, which weighed heavily on the dollar last year,” Ms Brooks said.
In the background, there is also the view among some on Wall Street that Mr Trump would like to see a weaker dollar to support US exports, although the administration has repeatedly avowed the longstanding US “strong dollar” policy. BLOOMBERG
