According to State Street, institutional investors are purchasing US dollars at the strongest pace in nearly two years, driven by demand for safe-haven assets amid the Middle East conflict. Since the outbreak of hostilities involving Iran on February 28, the dollar spot index has risen nearly 1.8%, as investors have moved into the currency. Rising oil prices have also provided support for the dollar. Lee Ferridge, a strategist at State Street, stated in an interview, "Since the conflict began, we have observed the dollar re-establishing its status as a global safe-haven currency, which has led to robust buying. Our fund flow indicators show that institutional investor demand for dollars is at its highest level in nearly two years." Prior to the conflict, many traders had bet on a weaker dollar. Subsequently, they have reduced these positions. The dollar has advanced alongside energy prices, while the euro and the yen have been the worst performers among the Group of Ten nations, highlighting their sensitivity to rising commodity prices. Ferridge noted, "It is significant that many had been underweight the dollar, and this had been the case for some time. Therefore, as the dollar has strengthened over the past 10 days, we have seen investors begin to unwind these short positions." Data from the US Commodity Futures Trading Commission (CFTC) shows that speculative traders' bearish sentiment toward the dollar has fallen to its lowest level since January. In the latest report for the week ending March 3, their short positions totaled approximately $12.3 billion, down from about $18.9 billion the previous week. The CFTC is scheduled to release data for the week ending March 10 this Friday. The dollar's rally during the conflict follows its worst annual performance in eight years. Influenced by the former President's aggressive trade policies, the dollar fell more than 8% in 2025, prompting investors to move some capital outside the US to hedge against the risk of further dollar weakness. Ferridge added that investors increased such hedging activities around the announcement of significant US tariffs last April, but demand for hedges eased as the dollar began to recover.
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