Goldman Sachs noted that in the first month following the outbreak of conflict between the U.S. and Iran, the sharp appreciation of the U.S. dollar prompted certain foreign official institutions to reduce their holdings of U.S. Treasuries to support their domestic currencies and alleviate capital outflow pressures. Goldman Sachs strategist Isabella Rosenberg stated in a report on Wednesday that the exchange rate of the U.S. dollar is one of the most significant factors influencing the demand for U.S. Treasury allocations by foreign official institutions. Data shows that in March of this year, the scale of U.S. Treasury holdings by foreign official institutions declined from historical highs; concurrently, the Bloomberg Dollar Spot Index rose by 2.4%, marking the largest monthly increase since July of last year. Rosenberg indicated that this change is likely related to some countries' efforts to stabilize their domestic currencies amidst the backdrop of Middle East conflict. She pointed out that as the war heightened global risk aversion sentiment, some emerging economies reliant on energy imports faced significant capital outflow pressures, forcing central banks to utilize dollar reserves and sell portions of their U.S. Treasury holdings to support their national currencies. However, Goldman Sachs believes this phenomenon is more likely temporary and does not signify a structural shift in global demand for U.S. Treasuries. Since the U.S. and Israel launched military strikes against Iran at the end of February this year, the U.S. dollar has continued to attract safe-haven capital. Simultaneously, the U.S.'s position as the world's largest oil producer has further benefited the dollar during periods of energy market turbulence. The Middle East conflict has disrupted global energy supply chains and reignited market concerns about a resurgence in global inflation. Analysts note that this has placed considerable pressure on economies heavily dependent on energy imports. According to Bloomberg tracking data, since the outbreak of the conflict, among 31 major currencies, the Japanese yen, South Korean won, Indian rupee, and Turkish lira have been among the worst-performing currencies against the U.S. dollar. Rosenberg stated that central banks' interventions to stabilize exchange rates actually indicate that these countries still wish to maintain their ties with the dollar system and hold U.S. Treasuries over the long term. She wrote, "Central banks taking action to defend their exchange rate systems typically implies they still have a strong desire to remain linked to the dollar and continue holding U.S. Treasuries in the long run." Goldman Sachs further noted that if the Middle East conflict subsides in the future, the U.S. dollar may revert to its previous weakening trend, which would again support increased U.S. Treasury holdings by foreign official institutions. Analysts pointed out that recent volatility in the U.S. Treasury market has intensified significantly, primarily due to investors reassessing the impacts of geopolitics, energy prices, and the Federal Reserve's interest rate path on global capital flows. Although some countries may reduce U.S. Treasury holdings in the short term due to exchange rate pressures, mainstream Wall Street institutions generally believe that the core position of U.S. Treasuries in the global financial system remains difficult to replace for now.
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