Unbelievable! The US dollar is about to record its biggest gain in half a year.

The U.S. dollar is expected to post its strongest monthly gain since July of last year, as safe-haven demand driven by the Middle East conflict and soaring energy prices have completely disrupted Wall Street’s predictions for this global reserve currency.

The Bloomberg Dollar Spot Index rose over 2% in March. After the outbreak of conflict, the rise in energy prices combined with cooling rate cut expectations has jointly pushed up the dollar. Just before the conflict, the dollar had just ended a four-month decline, making this strong reversal a stark contrast.

This rebound has caught institutions that were previously bearish on the dollar off guard. For the first time in a year, JPMorgan strategists have turned bullish, and futures market speculators have quickly shifted from their largest short position in nearly five years in mid-February to betting on a dollar rise. Standard Chartered Bank’s G10 FX research head Steven Englander stated, “The dollar short positions for early 2026 have been caught off guard.”

Shorts Defeated, Bulls Take the Initiative

As we enter 2026, institutions like Goldman Sachs and Deutsche Bank generally predict a weaker dollar, based on the core logic of the Federal Reserve continuing its rate cut cycle. This judgment is supported by historical evidence— the Bloomberg Dollar Index fell approximately 8% in 2025, marking the largest annual decline since 2017, with three rate cuts last year eroding dollar demand.

However, geopolitical conflicts have changed this narrative. Steven Englander maintains his bullish view since the beginning of the year, expecting the dollar to rise against the euro to about 1.12 by the end of the year, stronger than the current level of about 1.15, which would be a new high since May. In the options market, positions betting on the dollar strengthening over the next 12 months dominated during Friday’s London trading session.

Bloomberg macro strategist Brendan Fagan pointed out that the tightness in energy spot markets will bring sustained buying pressure for the dollar, with immediate demand for physical crude oil directly translating into immediate demand for dollars, while capital flow back will further strengthen dollar assets.

Bulls on the Sidelines, Discrepancies in Predictions Widen

Despite the dollar’s short-term strength, many institutions remain cautious about revising their predictions, primarily due to the unclear duration of the conflict and its trajectory.

Jayati Bharadwaj, head of foreign exchange strategy at TD Securities, wrote in a report this week, “The current risk environment favors the dollar, and if the conflict escalates further, we will turn bullish.” However, she also stated, “If the U.S. and Iran reach a peace agreement in the coming weeks, the dollar might weaken, so I will not revise my bearish forecast for now.” She wrote, “In this scenario, the fading U.S. economic growth advantage, the contraction of the safe-haven premium, and the potential strengthening of the ‘hedge against America’ trades triggered by recent U.S. policies will all put pressure on the dollar.”

Manulife Investment Management’s senior global macro analyst Erica Camilleri also maintains a bearish medium-term stance, although the firm has closed its dollar short positions this month. She cited the “exaggerated pessimism” regarding growth outside the U.S. and the remaining room for rate cuts by the Federal Reserve as reasons, stating, “We still hold a directional judgment towards medium-term dollar depreciation, and we expect the euro to appreciate before the end of the year.”

Long-Term Risks: The Dollar’s Dominance Under Scrutiny

Beyond short-term games, war is also reactivating a deeper discussion—whether the dollar’s long-term dominance is under threat.

Deutsche Bank noted in a recent piece that this war is testing the dollar’s position as the global currency for oil trade settlements, mentioning the potential trend of increasing use of the yuan. Broader concerns center on the idea that the war may trigger external anxieties about the U.S. fiscal trajectory, leading to a gradual withdrawal of funds from U.S. markets and dollar assets.

However, Goldman Sachs strategists pointed out this week that once market attention shifts to the risks of high energy costs weighing on economic growth, “it may dampen the overall appreciation of the dollar against G10 currencies.” Morgan Stanley went further, suggesting that as economic concerns mount, the dollar will weaken.

Elias Haddad, head of global markets strategy at Brown Brothers Harriman, stated, “Relative macro fundamentals have taken a backseat, with war-related headlines dominating market direction.” He anticipates that the dollar’s downtrend will eventually resume and emphasizes, “This is a tactical market that requires swift reactions.”

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