According to Wall Street Journal, the U.S. dollar index (DXY) has reversed all gains made since the Iran conflict began in late February, as of May 7. Following the conflict’s outbreak, investors initially unwound dollar short positions and bet on potential Federal Reserve rate hikes. However, these gains have since disappeared, partly due to market optimism over possible U.S.-Iran negotiations resuming.
Among G10 currencies, the Norwegian krone and Australian dollar have performed strongest since the conflict began, as both central banks raised rates recently due to inflation concerns. Sterling has also remained robust, with market expectations for UK rates shifting sharply from cuts to hikes this year. By contrast, investors currently see low odds of Federal Reserve rate hikes, with analysts noting the central bank’s dovish stance continues to weigh on the dollar.
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