Global foreign exchange capital is accelerating its flow back into the US dollar as tensions in the Middle East persist and international oil prices experience significant volatility.
Data aggregated by media and released by the US Commodity Futures Trading Commission on Friday shows that as of the week ending June 9th, the net long position in the US dollar held by hedge funds, asset managers, and other speculative funds reached $27.8 billion. This marks the highest level since February 2025, indicating market optimism towards the dollar's future trajectory has climbed to a more than one-year high.
Since the US and Israel launched military action against Iran at the end of February this year, the US dollar's status as a primary global safe-haven asset has been reinforced once more. Against a backdrop of escalating geopolitical risk, surging international oil prices, and consistently robust US economic data, a growing number of investors are beginning to wager on further dollar strength.
Data indicates that since the outbreak of the Middle East conflict, the US Dollar Spot Index, which measures the dollar's performance against a basket of major currencies, has risen by approximately 1.6%.
Concurrently, rising international oil prices have also become a key factor supporting the dollar. Historical patterns show a strong positive correlation between the dollar and oil prices, particularly during phases of rapid energy price increases. Expectations for US interest rates to remain elevated often strengthen in tandem, thereby driving the dollar higher.
Alex Cohen, a foreign exchange strategist at Bank of America, stated, "From a fundamental perspective, the current environment remains favorable for US dollar appreciation." He pointed out that stronger-than-expected US economic performance, persistent inflationary pressures, and inflows of safe-haven capital collectively constitute the primary supporting factors for the dollar at present.
It is noteworthy that market sentiment towards the dollar has undergone a significant shift. CFTC data reveals that speculative funds have maintained a net long position in the dollar for 13 consecutive weeks. Prior to the outbreak of the Middle East conflict, market sentiment was entirely the opposite. At that time, speculative funds held approximately $22 billion in net short positions against the dollar, broadly betting on Federal Reserve rate cuts and a weaker dollar.
Now, with US economic performance exceeding expectations and the market repricing the possibility of further Fed rate hikes, investors' assessment of the dollar's prospects has clearly reversed. Recently released US employment data has been a significant catalyst for this change.
The US added far more jobs than market expectations in May, strengthening investor confidence in the resilience of the US economy and prompting the market to readjust its expectations for the Federal Reserve's policy path. Currently, interest rate futures markets have largely priced in the possibility of the Fed raising rates at least once within the year.
Beyond the US dollar, the Japanese yen has also become a focal point in the foreign exchange market recently. The latest data shows that leveraged funds have further expanded their bearish bets on the yen, with related short positions rising to their highest level since 2017.
The USD/JPY exchange rate is currently hovering around 160, a crucial zone where the Japanese government intervened earlier this year to support the yen.
Market participants believe that the persistently widening interest rate differential between the Bank of Japan and the US Federal Reserve remains the main factor suppressing the yen's performance. Despite the Japanese government's repeated expressions of concern over yen depreciation, the yen still faces significant pressure in the short term against the backdrop of sustained high US interest rates.
Analysts note that CFTC positioning data is seen as an important barometer for gauging sentiment in the global $9.5 trillion foreign exchange market. The ongoing climb in dollar long positions reflects a widespread belief among institutional investors that, under the combined influence of geopolitical risks, rising oil prices, and the relative strength of the US economy, the dollar is still poised to benefit from safe-haven capital inflows.
However, some perspectives suggest that if the Middle East situation eases, oil prices retreat, or US economic data begins to weaken in the future, the currently crowded long dollar positions could face profit-taking pressure, thereby increasing exchange rate volatility risks.
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